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Liquor Policy: Issues in the Liquor Industry

GS Paper 2

 Syllabus: Government Policies and Interventions


Source: BS

 Context: High taxes and excessive licensing in the liquor industry contribute to corruption and financial burdens on consumers.


Indian Constitution views alcohol as an undesirable evil to be regulated. The Directive Principles of State Policy (Article 47) encourage the prohibition of alcohol consumption, except for medicinal purposes, aiming to protect citizens’ health. While not legally enforceable, these principles guide state action. Additionally, alcohol regulation falls under the authority of state legislatures according to the Seventh Schedule, allowing for varying laws across states, from prohibition to private sale.


Distribution of Power on Liquor Control in India:

  1. Central Government:
    1. Sets guidelines for import duties on foreign liquor.
    2. Formulates national-level policies regarding alcohol advertising and marketing.
  2. State Governments:
    1. Liquor falls under the State List (List II) of the Seventh Schedule
    2. Impose state-specific excise duties and taxes on liquor sales.
  • Issue licenses for liquor sales and distribution within the state.
  1. Set regulations on liquor sales, including permitted operating hours for liquor stores and bars.
  2. Introduce prohibition laws in certain states (e.g., Gujarat and Bihar).
  3. Allow liquor sales through government-owned outlets (e.g., TASMAC in Tamil Nadu).
  • Implement online liquor sales and home delivery services (e.g., Maharashtra and Delhi).


Approaches to alcohol policy vary across states: 

  1. Revenue-Driven Policies: States like Haryana and Delhi prioritize revenue from alcohol sales, leading to the widespread availability of liquor outlets.
  2. Socio-cultural Factors: Gujarat maintains prohibition due to cultural and historical reasons while Bihar has prohibition due to socio-economic factors.
  3. Government Control for Safety: Tamil Nadu regulates alcohol sales through its State Marketing Corporation to enhance safety, particularly in response to past hooch tragedies.


What is the Delhi liquor policy scam?

The Delhi Liquor Scam involves allegations of corruption and favouritism in the implementation of Delhi’s Excise Policy from 2021 to 2022. The policy aimed to reform the liquor sector by introducing private firms, but accusations claim it favoured certain companies with waivers, fee reductions, and multiple licenses. The AAP government denies any wrongdoing, citing increased revenue similar to policies in Punjab. However, the policy faced obstacles, including resistance from bureaucrats and the LG’s directive to halt implementation, leading to its withdrawal.


Issues with Alcohol Policies in India:

Issues Examples
Revenue vs. Health PrioritiesRevenue focus overshadows health concerns. Kerala’s rollback of partial prohibition (2018) for financial reasons highlights conflict
Dependence of States on revenue from liquor salesAccording to reports, it has been found that, in most states, around 15 to 30 per cent of the revenue comes from liquor.
E.g., Karnataka, Uttar Pradesh, Punjab, and West Bengal heavily depend on excise duty from alcohol, contributing over 20% to their own tax revenue.
Inconsistent State PoliciesHaryana’s attempts at prohibition failed due to difficulties in controlling illegal distillation and bootlegging, leading to fatalities.
Currently, there are five states (Bihar, Gujarat, Lakshadweep, Nagaland, and Mizoram) with total prohibition and some more with partial prohibition
Weak Enforcement of RegulationsFor, Alcohol firms flout advertising bans with little government intervention, like during major events such as the cricket World Cup.
Exclusion from GSTStates are reluctant to include alcohol in GST due to revenue concerns, preferring individual control over policies. Inclusion could simplify taxation and align it with other products.
Excessive TaxationHigh domestic and customs duties exceeding 200% and 150%, respectively, burden consumers financially.
Impact on HealthConsumers opt for cheaper, lower-quality alcohol due to high taxes, increasing health risks, especially among lower-income groups.
Hooch tragedies, where illicitly brewed alcohol leads to deaths or illness, occur periodically.
Government Monopoly in SalesCurrent policies lead to government monopolies in liquor sales, potentially fostering corruption and hindering private businesses.


Actionable steps to address alcohol policy issues:

  1. Include Liquor in GST: Simplify taxation by bringing liquor under GST, similar to cigarettes, for a streamlined tax process.
  2. Encourage Private Distribution: Transition from government monopolies to private liquor distribution, regulated for safety and age restrictions, to reduce corruption and promote business diversity.
  3. Reform Licensing Policies: Simplify licensing procedures for liquor sales in public spaces to reduce bureaucratic obstacles and foster a healthier business environment.
  4. National Health-Focused Policy: Develop a national alcohol policy prioritizing public health over revenue, aligned with the WHO’s recommendation of minimizing alcohol consumption.
  5. Legislative Action on Advertising: Enforce stricter regulations to ban alcohol advertising and control surrogate advertising by liquor companies.
  6. Balance Revenue and Health: Find a balanced approach to alcohol policy that considers both revenue generation and public health impact without compromising either.
  7. Open Discussion: Promote open, non-judgmental discussions about alcohol use, challenging traditional views and addressing religious perspectives to foster informed decision-making.


Ethical aspects of Alcohol use in India:

Ethical aspects of alcohol use include promoting responsible consumption to mitigate social harm, respecting cultural sensitivities, addressing health risks, minimizing environmental impact, ensuring economic equity, and complying with regulations.


Indian attitudes towards alcohol vary across different dimensions:

  1. Cultural Views: Alcohol is perceived differently across Indian cultures. While some communities, particularly upper castes, view it negatively, associating it with “tamasic” qualities, others, like many tribal societies, accept it openly.
  2. Gender Dynamics: Alcohol consumption by men often negatively impacts women, leading to social protests led by women against alcohol consumption in many communities.
  3. Alcohol and Religion: Various religions in India have differing stances on alcohol. Islam forbids it, Christianity tends to be more permissive, and Hinduism does not explicitly prohibit it but emphasizes moderation.
  4. Medical View: From a medical perspective, alcohol is recognized as harmful in India. It is associated with an increased risk of heart disease and can adversely affect liver health.


Thinker’s View on Alcohol Use:

Ethical ThinkerView on Alcohol Use
Mahatma GandhiStrongly advocated for prohibition of alcohol, viewing it as harmful to individuals and society.
B.R. AmbedkarSupported regulation and control of alcohol, emphasizing the need to address social and health issues.
Swami VivekanandaCondemned excessive alcohol consumption, promoting spiritual and moral development as alternatives.
Mother TeresaOpposed alcohol use due to its detrimental effects on individuals and families, advocating for sobriety.
PlatoGenerally opposed to excessive drinking, seeing it as a threat to reason and self-control in society.
AristotleAcknowledged moderate alcohol consumption but warned against excess, emphasizing virtue and balance.


For Why do some Indian states ban alcohol and its impacts?: Click Here


Geographical aspects of Liquor in India:

How Liquor is Made:

  1. Distillation: Most liquors are made through the process of distillation, where fermented grains, fruits, or vegetables are heated to vaporize the alcohol, which is then condensed back into liquid form.
  2. Fermentation: Initially, raw materials like grains (for whiskey), grapes (for wine), or sugarcane (for rum) are fermented using yeast, which converts sugars into alcohol and carbon dioxide.
  3. Ageing: Some liquors, like whiskey and brandy, are aged in wooden barrels to develop flavour and character. This ageing process can take several years, during which the liquor absorbs flavours from the wood.


Types of Liquor:

  1. Whiskey: Made from fermented grains like barley, corn, rye, or wheat.
  2. Vodka: Typically made from grains or potatoes and distilled to a high level of purity.
  3. Rum: Made from sugarcane or molasses and aged in wooden barrels.
  4. Gin: Distilled from grain and flavoured with botanicals like juniper berries, coriander, and citrus peels.
  5. Tequila: Produced from the blue agave plant, primarily in Mexico.


Climate Conditions:

The climate conditions required for liquor production depend on the specific type of liquor being produced. For example, grapes used in wine production thrive in temperate climates with well-defined seasons, while sugarcane, used in rum production, grows in tropical climates.

States in India Ahead in Liquor Production: Maharashtra, Karnataka, Tamil Nadu, Punjab, and Kerala. Maharashtra is the leading state for wine production in India

Karnataka is the largest-selling state for liquor. India is the third largest market for alcoholic beverages in the world, after China and Russia.


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