How The Alcohol Industry Impacting the Indian Economy? What Is The Excise Policy Case?

As the world’s largest Lok Sabha Election in witnessed in India, amid which the Chief Minister of the National Capital is arrested by ED over the excise policy case.

But what is the excise policy case?

In November 2021, the Delhi government, led by Arvind Kejriwal, unveiled a new excise policy with the aim of modernizing alcohol sales within the city. However, this initiative garnered a mixed response, with some lauding its progressive approach while others voiced concerns regarding its potential financial and public health ramifications.

Less than a year later, in July 2022, Delhi’s Chief Secretary Naresh Kumar brought forth instances of policy violations to Lieutenant Governor (L-G) Vinai Kumar Saxena. Upon review, L-G Saxena recommended an investigation by the Central Bureau of Investigation (CBI). The submitted report alleged financial losses to the exchequer totaling over Rs 580 crore.

Lets understand the evolving significance of Alcohol:

The COVID-19 lockdown period marked a shift in the perception of alcoholic beverages, transitioning from non-essential to a significant contributor to economic recovery. As lockdown days extended, the plea for reopening liquor stores grew louder from various states, citing economic distress. Notably, Karnataka witnessed record-breaking single-day liquor sales of ₹197 crore shortly after reopening, a trend mirrored in Delhi and Uttar Pradesh.

Increased home consumption during the pandemic led to a refined taste among consumers, favoring premium brands and emphasizing quality over quantity. This shift extends to social settings, where the burgeoning fine dining culture across metro cities and Tier II/III regions drives demand for alcoholic beverages. Urbanization, evolving consumer preferences, and a burgeoning middle-class population with higher disposable incomes further fuel this demand.

How Alcohol Benefits State?

Believing the health experts, excessive consumption of alcohol is considered to be very harmful for the body, but there is no limt issued by the government as it is a proven fact that a majority of the state government’s revenue is bagged from the sale of alcohol. Each state borrow separate norms over the alcohol sale. There also exists a state where alcohol is banned but on the  other hand several other state government have assured home deliveries of alcohol to surge the revenue from excise duty on alcohol.

Typically, states derive their primary sources of revenue from various avenues such as state GST, land revenue, taxes on petrol and diesel, among others. Notably, excise duty constitutes a significant portion of state government revenue.

Reports indicate that, in many instances, approximately 15 to 30 percent of state revenue is attributed to liquor sales, with Uttar Pradesh leading in this aspect. In the fiscal year 2022–23, UP recorded a record-breaking excise duty revenue of Rs 41,250 crore.

According to official data, India generated approximately Rs 1.75 lakh crore from excise duty in the fiscal year 2020–21, with Uttar Pradesh emerging as the top-earning state from liquor sales. Additionally, states like Karnataka, Maharashtra, Delhi, Punjab, and Madhya Pradesh also recorded substantial revenue from the sale of alcohol.

As per a media report,  the southern city of Puducherry had the highest excise duty share of 34 percent on the state tax revenue from alcoholic beverages in India during the financial year 2022. Comparatively, the state of Karnataka had an excise duty share of 22 percent in the same period, whereas Goa levies approximately 49 percent tax on liquor.

Hence, a spirit bottle priced at Rs 100 in Goa would be approximately Rs 513 in Karnataka. Additionally, the collection of excise duty varies depending on whether the alcohol is domestically produced or imported.

Every state enforces its unique policies regarding alcohol sale, distribution, and pricing, resulting in tax discrepancies. During the nationwide lockdown, with liquor shops closed, states purportedly suffered losses of about Rs 700 crore per day due to halted liquor sales.