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Is opening liquor shops amid coronavirus necessary?

Amidst the Covid-19, relaxations started with several state governments deciding to open liquor shops around the major cities and towns. As a result, a surprisingly high number of people queued in front of liquor shops to stock up, expecting another forthcoming lockdown. Let's look at the impacts.

 Lockdown 3.0: Winebibbers on the way to save the economy

With the complete shutdown of all productive activities in lockdown phase 1.0 and 2.0 amid coronavirus pandemic, the center and state are struggling to keep their coffers filled. In the current state of coronavirus pandemic government’s coffers are nothing but arid desert. On the other hand, the authorities have no choice but to shut all profitable activities just to bend the curve and decrease the mortality rate. It was not until Lockdown 3.0 when the authorities decided to give considerable relaxation. The relaxations started with several state governments deciding to open liquor shops around the major cities and towns. As a result, a surprisingly high number of people queued in front of liquor shops to stock up, expecting another forthcoming lockdown. The tipplers seemed like lions pouncing over fresh meat and were seen carrying crates of corona(beer) back home. One day revenue collection from sale of liquor in Uttar Pradesh was Rs 100 crore, beating most of the Salman Khan starrers. Figures were similar for other states. States and union territories allowed reopening of liquor shops under certain conditions such as:

  1. Delhi – The Delhi government allowed reopening of 150 standalone liquor stores from 9am to 6:30 am and deployed marshals to ensure that social distancing norms are followed. Liquor shops in coronavirus containment area were not allowed to open.  The government announced a 70 percent hike in the prices of liquor across categories and named it as “special corona fee” on alcohol.
  2. Uttar Pradesh– The UP government allowed standalone liquor shops to open between 10 am to 7 pm with strict social distancing norms.
  3. West Bengal– The authorities ordered to open standalone liquor shops only in the green zones. The government also imposed a sales tax of 30 percent on MRP of the liquor bottles across all categories.
  4. Maharashtra – Similar to other states, authorities allowed reopening of standalone liquor shops only in non- containment area.
  5. Chhatisgarh– Allowed reopening of liquor stores from 8 am to 7 am. The excise department also allowed home delivery of liquor to avoid crowds in stores.
  6.  Karnataka – Karnataka excise commissioner allowed liquor shops to open in non- containment area and ensured people stand at least six-meter apart while purchasing. On-site sanitizers and masks were made available to the buyers.
  7. Assam and Himachal Pradesh – Both states allowed the sale of liquor in a similar manner to other states and the HP government decided not to charge any license fee from liquor vendors from 22nd March or 3rd May.
  8. Andhra Pradesh – The AP government increased liquor prices in the state. It announced a 50 percent hike on MRP, following a 25 percent hike on the next day.

 The disturbing fact here is that people outside the liquor shops were flouting social distancing norms. The situation got out of hand resulting in “lathi charge” and closure of the liquor shops yet again. Although, the situation of a large crowd ganged up to stock liquor did not go well with the authorities fighting the coronavirus outbreak. On the other hand, the revenue earned from a day’s sale definitely brought cheers in the state’s revenue department. The constant struggle to manage the crowd outside liquor shops shows how desperately the government is starving of funds amid coronavirus and how crucial is the sale of liquor to fill in the coffers of the state’s revenue department.

How do states collect revenue from liquor?

Liquor of all kinds is a demerit good. Demerit goods are goods with negative externalities and are taxed heavily. Each state has the right over collecting revenues on liquor and collects revenue according to its individual policies and requirements. Liquor contributes a significant amount to the exchequers of the states and union territories except Bihar and Gujrat both of which have imposed a strict prohibition on consumption and sale of liquor. In general, states impose excise duty on the manufacture and sale of liquor where some states impose Value added tax or special fee on imported liquor.  Some states like Uttar Pradesh charge special duty on liquor to raise funds for various special purposes, like maintenance of stray cattle. According to a report “State Finances: A study of budgets of 2019-20” published by Reserve Bank of India in September 2019, the excise duty on liquor/alcohol accounts to almost 10 to 15 percent of its own tax revenue of majority of the states in India.  The state excise duties on liquor have the third-largest share in the state’s own tax revenue. The share of liquor in the state’s revenue is given below

More than 20%15-20%10-15%Less than 10%Nil/Negligible
KarnatakaChhattisgarhAndhra PradeshArunachal PradeshBihar
Himachal PradeshMadhya PradeshHaryanaAssamGujarat
MeghalayaPunjabOdishaGoaManipur
RajasthanTelanganaJharkhandNagaland
SikkimUttar PradeshKerala
West BengalMaharashtra
Mizoram
Tamil Nadu
Tripura

How much do the tipplers contribute to the state’s coffers? – Earnings of the states from excise on liquor.

The outcry of the states and union territories to put an end to the ‘shutter down’ rule for the liquor shops ever since the first phase of lockdown was announced was loud and clear. This clears all doubts regarding, why it has suddenly become so important to reopen liquor shops which happens to be a non-essential items, amid coronavirus. Coronavirus has sucked the revenues like a leech. Thus, it has become crucial to reopen liquor shops as they help states earn a high amount of wherewithal. According to the RBI report stated above, the total revenue earned from state excise on liquor from 29 states and 2 union territories accounted to Rs 1,75,501.42 crore in the year 2019-20 which is 16 percent higher than that of the year 2018-19, that is Rs 1,50,657.95 crore. The revenue collection for excise duty on liquor of the top 5 states are stated below, however, these projections were made before the coronavirus outbreak.

 2018-19 (RE) in crore2019-20 (RE) in crore
UTTAR PRADESH25,10031,517.41
KARNATAKA19,75020,950
MAHARASTRA15343.08517,477.388
WEST BENGAL10,554.3611,873.65
TELANGANA10,313.68510,901

What’s in store?

During the lockdown due to coronavirus, the State’s own tax revenue has fallen significantly, barring the sale of some petroleum products and GST on discretionary spending. Liquor and petroleum are so important for the state’s revenue that the states had a nail-biting fight with the center to keep these items out of the umbrella of GST.  According to the chart above, UP raked the highest revenue in 2019 followed by other states. In light of this, it is important to keep in mind that liquor is sold through government outlets or units, which receives a contract from the government. Generally, states have an annual contract from the center which expires at the end of March and new entities take over from April. UP has more than 25 large liquor production units. With the commencement of the lockdown, the UP government freed the liquor manufacturers from liquor production and asked them to manufacture alcohol-based hand sanitizers and start production of liquor in the future. The stocks in the stores fall down by the end of March and get replenished in April, but this could not happen as the government announced a complete lockdown due to the coronavirus outbreak in the country. Experts say that the long queues in front of the stores were not only because of the desperateness but also because of the low availability of stocks.

It’s logical, why the states want the liquor shops to open as we check the revenues and benefits that could help states fight coronavirus but the question is “On what cost?”.  Boozers clearly ridiculed the importance of social distancing while standing in queues. This may cause serious damage to the current pandemic situation and may accelerate the spread of the virus. On the other hand, we cannot ignore that liquor seems to be the best way to fill in coffers at the current distressful situation due to coronavirus. With all productive activities shut and decrease in collection of revenue from other sources due to coronavirus lockdown, reopening of liquor shops is the guiding star.

Thus, to avoid the situation of all or nothing government needs to come up with a variety of measures to maintain the sale of liquor keeping in mind the safety of the citizens. Rules like five men at a time, home delivery, deployment of high-security forces to check situations outside the stores can help to conquer the motive and save lives at the same time.

Nayonika Chakraborty
My name is Nayonika Chakraborty. I am a BSc Economics(Hons) graduate. My outlook on the world is a combination of diversity and knowledge and I practice it in my life as well. I aspire to become an economist and face the growing economic challenges of the country while keeping myself attached to the roots of my culture through my immense passion for classical dance and music.

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