Alcohol and the Indian Economy
Alcohol is the third biggest reason for road accidents in India, a huge benefactor to endless diseases such as liver cirrhosis, cancer and the reason behind the death of almost 2.6 lakh Indians every year (according to a 2018 WHO report). About one third of India’s population consumes alcohol on a regular basis and 11% of the total Indian drinkers are moderate or heavy drinkers. One third of males and one fourth of females in India who have made it a part of their lives say it causes problems to their health, household and finances. Yet, alcohol proves to be an intricate and essential part of the Indian economy.
The reasons are blatant. India’s states put together earned Rs.1.75 trillion from taxes on alcohol in the fiscal year of 2020.
Image Courtesy- Mint
India has had a long standing history with prohibition of alcohol. States have been conflicted between the problems created by alcohol abuse and the need for revenues. Some states, however, have gone the whole way in imposing prohibitions- Gujarat (since 1960), Nagaland (since 1989), Bihar (since 2016), Mizoram (since 2019) and most parts of Lakshadweep. Apart from these, for nearly all state governments, liquor revenues are a cash cow. Maharashtra, Tamil Nadu, Uttar Pradesh and Telangana collected above Rs. 20,000 crores in taxes from the sale of liquor in 2018-19. As many as 21 states, derived more than 15% of their own tax revenues from the sale of liquor. Five southern states- Andhra Pradesh, Telangana, Tamil Nadu, Karnataka and Kerala account for more than 45% of all liquor sold in India. With the advent of the Coronavirus pandemic in 2019, alcohol sales proved to be a savior. With nearly every revenue stream exhausted, the Government opened alcohol stores after a long haul owing to the lockdown. The harsh lockdown meant that there was a pent up demand for booze. Alcohol sales attract excise duty, which is a major source of revenue for state governments where sale and consumption of liquor is not prohibited.
On the first day of the allowance after the lockdown, liquor worth Rs.100 crores was sold within nine hours in Uttar Pradesh. Astoundingly, liquor worth 70-80 crores is sold almost everyday in the most populated state in the country. On day two of opening liquor shops post lockdown, Karnataka reported single day liquor sales of Rs. 197 crores- its largest ever. Similar record sales were observed in Delhi and Maharashtra.
Selling alcohol has never been easy in India. Yet, by volume, India is the world’s second largest consumer of spirits, behind China. India consumes more whiskey than any other country in the world, about three times more than the USA, which is the second largest consumer of whiskey. Nearly one in every two bottles of whiskey around the world is now sold in India. When worldwide consumption of alcohol dipped in 2018, India single handedly drove a 7% uptick in the global whiskey market. Per capita alcohol consumption in India has more than doubled from 2005 to 2016, according to a WHO report. WHO also went on to say, the per capita consumption of alcohol is only set to grow by another 2.2 litres by 2025.
But India’s growing alcohol consumption masks a darker reality. One third of Indian drinkers consume cheap and locally brewed liquor, which often falls into the category of spurious liquor (presence of excess methane). This spurious liquor is responsible for several tragedies due to its unreliable quality. Such ‘Hooch Tragedies’ usually occur in states where liquor is banned and it is mostly purchased by people who are desperately looking for a cheap alternative. Around 19% of alcohol users are dependent on this cheap liquor. This has resulted in a long history of tragedies with over 6,000 reported deaths caused by consumption of spurious liquor, especially in the states of Bihar and Chattisgarh.
As much as alcohol helped the economy during COVID-19, several lives in India bore the brunt of alcohol before the pandemic took over the world. In 2017, alcohol was responsible for more than 5,80,000 deaths in India. More than 60% of deaths due to cirrhosis of the liver were linked to consumption of alcohol. Of about 4,67,000 road accidents in India in 2018, drunk driving was responsible for 12,018 accidents and 4,188 deaths.
Addiction also causes economic loss. In 2000, Vivek Benegal and his team assessed 113 patients admitted to a special de-addiction service for alcohol dependence. They found the average individual earned a mean of Rs.1661 but spent Rs.1938 per month on alcohol, incurring high debt. They also found out 95% of them did not work for about 14 days a month. They concluded that it led to a loss of Rs 13,823 per person per year in terms of productivity.
But for now, revenues are all states can see in liquor.
-Mrunmayee Joshi & Jatin Kulkarni
SY. BSc Economics