Bihar Liquor Ban: Nitish Starts off on the Wrong Foot

Has Nitish Kumar set up the biggest roadblock on Bihar’s journey towards peace and development by banning liquor?

Shekhar Swarup, Executive Director of Globus Spirits, could not have chosen a worse timing to make a statement on a news channel; in an interview on 26 November 2015, Swarup said that his company was setting up a distillery in Bihar, since the demand from the state was good. The refinery is expected to be ready in first half of 2016. Within an hour of his interview Bihar’s newly elected chief minister, Nitish Kumar, announced that he is banning liquor in Bihar.

The announcement was in accordance with Nitish’s electoral promise made to a women’s group in Patna. Politically speaking, Nitish is right to keep his promise, but did he just set up the biggest roadblock on Bihar’s journey towards peace and development?

Trade Moves Underground

Historically every state and country that has decided to ban liquor has seen a rise in the underground market controlled by gangsters; liquor bans resulted in the rise of Al Capone in the USA and Varadarajan (Varda Bhai) in Mumbai. A liquor ban in Bihar would be a easy opportunity of gainful employment for the notorious gangsters of the region to recruit from the high number of unemployed youth to fill in the parallel industry.

It is a well-proven fact that banning liquor does not mean that liquor is not consumed. In fact data shows that consumption increases during such period. The biggest loser in this case is the state that imposes the ban.

Take the case of Gujarat, which has a ban on liquor since the day the state was formed in 1960. Any person visiting the state can tell you that liquor is easily available, but for a price. A hooch-related tragedy in 2009 near Ahmedabad demonstrated how the trade went underground. But the most telling information is from government data.

Neighbours Benefit

The Hindu has quoted a National Sample Survey Office data which says that the largest consumption of Toddy and country liquor is from the union territory of Dadra and Nagar Haveli, which borders Gujarat. Per capita consumption per week in the union territory is 2,533 ml, nearly 10 times that in Bihar, which stands at 266 ml.

In the consumption of foreign liquor, beer and wine the highest numbers are in the Daman and Diu union territory, again bordering Gujarat. Per capita consumption per week in Daman and Diu is 1,079 ml. In comparison Kerala consumes only 102 ml a week, while in Punjab, lan of the famous Patiala peg, consumption is 50 ml per week per person.

These figures illustrate that for Gujarat, consumption has only moved across the border. Thus the state government is deprived of taxes and the people of growth, which could have led to job creation.

Loss of Revenue

Bihar does not feature on the branded liquor consumption map of the country. Edelweiss says in a report that Bihar’s contribution to the total Indian Made Foreign Liquor (IMFL) market is in the lower single digit. But as far as Bihar is concerned the consumption resulted in nearly 15 percent of the state tax collection.

With one stroke of the pen the state has lost one of its single biggest sources of revenue. In most of the states that do not have too much of manufacturing activity, as in the case of Bihar, liquor constitutes nearly one-fifth of the states’ revenue. Liquor tax is generally among the top three source of income for such states.

In their interaction with the central government, states had asked liquor to be excluded from the ambit of the Goods and Service Tax. Bihar has just forgone a big opportunity of collecting higher taxes.

Attracting Investments Just Got Difficult

There are other disadvantages to banning liquor in a state, as can be seen in the case of Gujarat. Despite the ready infrastructure and industry-friendly government policy, Gujarat has not been able to attract the service sector. Most of its revenue is from the manufacturing sector.

Youngsters are unwilling to move to states that do not appreciate their choice, notably a lack of night life activity. In fact, IT companies have been vocal in pinpointing the liquor ban as the main reason against setting up offices in Gujarat.

Nitish and his partner Lalu Prasad Yadav have done precious little in attracting investment in their state during their collective rule. The few companies that set up shop in the state were distilleries like Globus Spirits, who will be left high and dry (literally) with the ban. This will also set a bad precedent going forward in attracting investment.

Collateral Damage

Apart from loss of revenue there will be a higher cost required to impose the prohibition, adding pressure of the state government’s feeble financials.

All that prohibition will do is increase the cost of accessing liquor. For a poor man who is habituated to drinking it would mean lesser food on the table for his children.

Nitish, though well-meaning, has started with the wrong foot forward, a move for which the state will have to pay for the next five years.

(The writer is a Mumbai-based market analyst)