By Ritesh Kumar Singh

An increasing number of Indian states are imposing a ban on alcohol. The reason, supposedly, is to check crimes, especially those against women, rising road accidents and public health expenditure caused by alcohol abuse. Bihar is latest to join the bandwagon. 

Kerala has banned the sale of alcoholic beverages in all bars and restaurants, with the exception of 5-star hotels. Tamil Nadu’s Chief Minister Jayalalithaa has promised to phase out the sale of alcoholic drinks. There is a growing demand for prohibition in Maharashtra, J&K and UP, even though such bans have no real success stories. 

Alcohol Ban in India

The delusional fix of banning consumption of alcohol in Indian states | Photo Courtesy : Miscellany News via Flickr

Despite its well-intentioned social and health objectives, prohibition hasn’t ever worked. Yet state after state has fallen prey to this delusional fix. With the rise in road accidents and crime rates, there is a genuine expectation among voters, women voters in particular, that the government must do something about it. Prohibiting alcohol becomes a haphazard answer. Politicians seeking to capture popular votes in a democratic polity fall prey to this impractical solution. At the same time, it creates new problems to deal with.

The Reality

An analysis of road accidents data for 2011 done by IndiaSpend shows that 77% of accidents happened because of drivers’ faults. Out of that, 59% were caused by over-speeding. Only 6.4% of them were caused by drunk driving. Thus, empirically, there isn’t a strong relationship between drunk-driving and road accidents, contrary to popular belief.

An analysis of road accidents data for 2011 done by IndiaSpend shows that 77% of accidents happened because of drivers’ faults. Out of that, 59% were caused by over-speeding. Only 6.4% of them were caused by drunk driving.

Similarly, not many studies have been conducted to conclusively establish a causal relationship between consumption of alcohol and crimes against women. 

The experience of prohibition in the US (1920-33) shows that a ban on mutually beneficial transaction never works in practice, regardless of the intentions behind it. The US banned alcohol to check crime, reduce  tax burden on citizens (caused by ever-rising expenses on maintenance of prisons), and to improve general health and hygiene. However, prohibition failed on almost all these counts and finally, it had to be abandoned. 

Alcohol Ban in India

Banning alcohol in the name of road accidents justified? | Photo Courtesy: Purushottam Samarai via Flickr

Post the imposition of prohibition in the US, organised gangs took over the trade. Alcoholic drinks continued to be sold illegally in a parallel market. It encouraged corruption in police personnel. Worse, it deprived the government of an important revenue source. It even promoted the use of drugs among those who couldn’t easily get alcohol.

India’s Experience

Indian states have had similar experiences. Alcoholism is an individual problem and a state has a limited role to play in this personal choice. Also, prohibition makes illicit trade of alcoholic beverages highly lucrative. The more stringent the penalties, the more lucrative the business becomes. 

Moreover, the ‘some states banning while others not’ policy ensures the failure of prohibition from day one. Many people from Gujarat, a prohibition state, simply travel to the neighbouring state, Daman, to drink. They don’t stop drinking. The result is: tax revenue is collected by Daman & Diu rather than Gujarat. Andhra Pradesh and Tamil Nadu have had similar experiences, so have Mizoram and Nagaland. Post the ban in Bihar, sale of alcohol in neighbouring Eastern UP has gone up substantially.

Taxes on liquor accounts for nearly 20% of Indian states’ tax revenues.

Taxes on liquor accounts for nearly 20% of Indian states’ tax revenues. For instance, Bihar collected INR 36.6 billion from excise duties on liquors in FY 2014-15.

Similarly, Tamil Nadu (where the state government has the monopoly in the wholesale and retail sale of alcoholic beverages) made INR 26.8 billion in FY 2014-15. Further, it is expected to cross INR 29.6 billion. This collection accounts for over 30% of the state’s tax revenue. Thus, the state banning the sale of liquor becomes a net loser.

Given poor health of states’ finances in general, most states can’t really afford to forego revenue from the sale of alcohol.

Some of them, like Bihar, met the challenge by increasing VAT on sweets and snacks, dry fruits, sand and cosmetics. The success of this compensation is yet to be seen, as many of these items are sold by unorganised retailers who deal in cash and don’t pay taxes. 

Other Side Effects

Revenue loss is not the only problem. Tourists are less likely to visit states that ban alcohol. This reduces the state’s income from tourism services.  Besides, prohibition promotes bootlegging and drives more people towards illegal hooch or drugs. Between 2012 and 2014, close to 3000 Indians lost their lives because of consumption of spurious liquor

Prohibition also means loss of jobs for people employed in breweries, distilleries and hospitality industries. These side-effects of prohibition can’t easily be wished away when India is troubled by jobless growth. Yet, lured by short-term political dividend, states continue to experiment with prohibition.

Alcohol Ban in India

Banning Alcohol? Now, loose out on huge revenues | Photo Courtesy: Rita & Tomek via Flickr

In 2006, when Nitish Kumar introduced 50% reservations for women in elections to the local bodies, a strong women voter base was created for JD(U). By introducing prohibition, Nitish Kumar might be trying to further consolidate his women vote bank. After all, this was the bank that helped him win successive elections in Bihar. Other politicians may want to emulate this model.

The Way Forward

To summarise, prohibition solves less number of problems than it creates. A better approach is to progressively raise taxes on alcoholic beverages along with boldly putting statutory warnings about dangers of drinking on the package. Then, let people take a call. This move would also take care of the much-needed tax revenue that Indian states require to spend on social development programs. Interestingly, these programmes include de-addiction and women welfare drives.

The major reason for rising road accidents is general neglect for speed limits. Poor traffic management and the lax enforcement of regulations on drunk driving exacerbate the situation. Cancelling driving licences of drunk drivers would be effective in checking road accidents. Better policing and investigation, and improved conviction rates will deter crime against women.

However, that calls for undertaking serious police reforms, for which no Indian state has shown much interest. As of today, despite its ineffectiveness, prohibition remains an easy fix.

Ritesh Kumar Singh is a corporate economic advisor and an oped columnist based in Mumbai. He has previously worked for Raymond Limited, Aditya Birla Group, 13th Finance Commission, and the Cabinet Secretariat in various capacities. He regularly writes for Nikkei Asian Review and The Hindu Business line.

Featured Image Credits: Siil via Flickr

Posted by The Indian Economist