Categories: Economy

Alcohol effects on the economy

Alcohol effects on the economy– The Indian liquor industry is one of the foremost vibrant within the world. The quantity of Alcohol sold in India is dazzling and demand for the same is growing among Indians. India is one of the top markets for higher consumption and growing at a healthy rate.

Alcohol, when consumed in moderation is proven to be benign and some forms of alcohol such as wine are known to be good for the heart. Just ask the French many of whom drink much wine, eat fatting cheese, smoke with abandon, and eat kilos of meat yet enjoy better health and outlive those in countries where healthier regimes are regularly followed.

Talking as of present scenario, the opening of liquor shops after a 40-day gap brought cheer for states starved of funds amid the ongoing coronavirus lockdown. Seeing large crowds at shops, it became clear why liquor sales are crucial for states to boost their revenues. The serpentine queues of the tipplers on Monday also opened an opportunity for the states to increase prices and earn additional revenue. While the Delhi government announced a 70 percent increase (special corona fee) across categories, Andhra Pradesh ordered two successive hikes. The southern state cleared a 50 percent hike in maximum retail price (MRP) on Monday after a 25 percent increase on Sunday. Even Punjab, one of the highest per capita consumers of liquor in India, is mulling a hike, sources said. The state is actively considering a ‘special corona charge’ on liquor for a specified period to earn more revenue.

Alcohol sale is crucial for states as well as Center

States earn a large part of their revenue from the sale of liquor. The states such as Tamil Nadu impose a value-added tax (VAT) apart from a special fee charged on imported foreign liquor. The transportation of liquor and registration of liquor brands are the secondary sources of revenue from alcohol.

The revenue receipts from state excise come mainly from commodities such as country spirits; country fermented liquors; malt liquor; foreign liquors and spirits; commercial and denatured spirits and medicated wines; medicinal and toilet preparations containing alcohol, opium; opium, hemp, and other drugs; Indian-made foreign liquor (IMFL); spirits, and sales to canteen stores depots. Other than this, a substantial amount is added to the state coffers from licenses, fines, and confiscation of alcohol products.

The share of alcohol in the earnings is over 20 percent for five states including Karnataka and Rajasthan, a report by Indian Ratings & Research (Ind-Ra), a  subsidiary of Fitch Group, said. Uttar Pradesh, Punjab, Madhya Pradesh, and four other states earn 15 to 20 percent from liquor, and three states including Andhra Pradesh and Odisha earn 10 to 15 percent. In the case of states, liquor sales are part of a pool comprising State Goods & Services Tax (SGST), VAT or Sales Tax on petrol-diesel-jet fuel, stamp and registration, and electricity duty.

According to the Reserve Bank of India’s ‘State Finances: A Study of Budgets of 2019-20′ report published in September 2019, the levies on alcohol make-up on an average of 10 to 15 percent of States’ Own Tax Revenue (SOTR) for the majority of states. It makes liquor levies the second largest contributor to the state exchequer. SOTR, a share in central taxes as per finance commissions recommendations, SONTR (States’ own Non-Tax Revenue), and grants from the center are the sources of revenue for the state government.

The average share (FY18 to FY20(BE))of SOTR in revenue receipts is around 46 percent and it’s the same in central taxes. On the other hand, the share of SONTR and grants is 26 percent. In fact, a whopping 90 percent of SOTR is generated from five revenue heads — state VAT (mainly petroleum products, 21.5 percent), taxes on property and capital transactions (11.2 percent), state excise(mainly liquor, 11.9 percent), tax on the vehicle (5.7 percent) and state goods and services tax (39.9 percent). During the lockdown period, SOTR has declined significantly, barring some sale of petroleum products and state goods and services tax on non-discretionary spending.

Since both alcohol and petroleum are crucial revenue contributors, states fought tooth and nail with the central government to keep the items out of the GST-ambit. The revenue generated from liquor depends on the volumes sold. That’s why a state such as Uttar Pradesh, with low per capita consumption of liquor due to lower per capita income levels, gathers high revenue from sales. In 2019, Uttar Pradesh made a whopping Rs 25,000 crore from liquor.

Among the major earners of revenue from liquor sales include Karnataka (Rs 19,750 crore), Maharashtra (Rs 15,343.08 crore), West Bengal (Rs 10,554.36 crore) and Telangana ( Rs 10,313.68 crore).

Since states were demanding the opening of liquor stores during the 40 days of lockdown, the Union Government, in the latest guidelines, lifted the ban on opening of liquor shops in all zones, barring containment zones in red, orange, and green zones along with some riders. Based on the demands from the states, the central government allowed sales at standalone shops with social distancing. The halt in economic activities has drastically reduced the SGST and VAT earnings of states. It implies that liquor is the only option to provide some relief to state finances.

Faiz & Mohtasham

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