A 28-year-old man committed suicide in Kannur district of Kerala on March 28, frustrated over not being able to get a drink following the closure of state-owned liquor outlets by authorities as a measure to control the spread of Covid-19. A rash of other deaths linked to dearth of alcohol has been reported from parts of the country, including of people who experimented with dangerous chemicals to get a kick.

Liquor, like petroleum, has an inelastic and huge demand – the price may go up and down but the sales are not affected much – as long as there is enough supply.

But such are the times that with the lockdown, even the demand for petroleum, a big revenue generator for various state governments, is at an all-time low. With almost all other sectors of revenue generation shut due to Covid-19 and the economy in the doldrums, it does not come as a surprise that various state governments in India are now mulling the option of allowing sale of liquor – both through state-owned shops and online.

But why liquor? After all, it comes under the category of a “sin good”.

The answer is plain and simple – the revenue generated by alcohol funds nearly one-fifth of the budget of most state governments – and this share is going up every year. India is one of the fastest growing alcohol consumers in the world. Barring Gujarat and a few other states where alcohol is banned, revenue from liquor is the second, third or fourth largest contributor to most parts of India.

The Indian alcohol market is expanding at a compound annual growth rate (CAGR) of 8.8% with wine and vodka showing a very high demand. India also happens to be the largest consumer of whiskey in the world. The sale of alcoholic beverages has gone up by 38% between 2010 and 2017.

According to state excise figures for 2015-16, Tamil Nadu made the maximum revenue through alcohol sale in India – almost Rs 30,000 crore annually.

STATE - REVENUE FROM ​LIQUOR

Tamil Nadu - Rs 29,672 crore

Haryana - Rs 19,703 crore

Maharashtra - Rs 18,000 crore

Karnataka - Rs 15,332 crore

Uttar Pradesh - Rs 14,083 crore

Andhra Pradesh - Rs 12,739 crore

Telangana - Rs 12,144 crore

Madhya Pradesh - Rs 7,926 crore

Rajasthan - Rs 5,585 crore

Punjab - Rs 5,000 crore

The economic slowdown did not affect liquor sales in Maharashtra last year. The sales went up by almost 10% in the first three quarters of the 2019-20 financial year as compared to the same period in 2018.

Tamil Nadu saw the revenue crossing Rs 30,000 crore for the first time in 2018-19 – a rise of 16% from 2017-18.

The Delhi government is expecting Rs 5,980 core from the excise duty on alcohol in 2019-20, which is 14.1% of the tax revenue it hopes to collect during this period.

Kerala recorded its highest ever sales in 2018-19 – a whopping Rs 14,508 crore. Interestingly, the sales peaked in August when the state was hit by devastating floods.

Karnataka saw a significant boost as alcohol sales went up by 8.64% in the state between April and August 2019.

With growing unmet demand, big losses for the industry and diminishing revenue for the states, the Confederation of Indian Alcoholic Beverage Companies (CIABC), the premier body of leading liquor firms, has sent a second letter to the ministry of commerce, requesting opening up of liquor shops including pubs and restaurants in areas apart from Covid-19 hotspots.

CIABAC director general Vinod Giri said, “Factory warehouses hold stock, trucks are stranded, distribution warehouses are locked with stock and retail shops sit on unsold stock. The industry which contributes almost Rs 2-lakh crore by way of various taxes, sustains livelihood of nearly 40 lakh farmers, and employs nearly 20 lakh people directly and indirectly is in dire straits.”

​Assam followed Meghalaya and has opened liquor shops, wholesale warehouses, bottling plants, distilleries and breweries from Monday but with strict guidelines and social distancing norms. The state has lost Rs 100 crore in alcohol revenue earnings in the last two weeks.

Kerala had become the first state to allow liquor sale on prescription amid the lockdown before the high court put a stay on the order. Chhattisgarh opened state-run liquor stores on April 2. Kerala’s annual revenue collection from alcohol sale excise is Rs 11,500 crore while the corresponding number for Chhattisgarh is Rs 5,000 crore.

The West Bengal government, in order to boost revenues from sale of alcohol, is planning to impose an additional tax on both Indian-made foreign liquor (IMFL) and beer. The money would be used to fight Covid-19 in the state. With no fund from the Centre coming in, GST return deferred and no income from stamp duty as it is closed, the state is desperate to make additional income from alcohol when sale resumes.

Various Indian states had undertaken populist schemes and measures just before the general elections in 2019. To generate more funds, they had already raised taxes on liquor to meet the fiscal deficit.

Now with the states under a major revenue crunch and also with an increased demand for alcohol during the outbreak, especially with the possibility of an extended lockdown, opening of a few liquor stores and online delivery may just unbolt a much-needed source of income.

However, the challenge for the states would be to balance the reopening of liquor shops with stringent norms of social distancing and prevent overcrowding.

Otherwise, the significant progress made during the lockdown will all go to waste and no amount of revenue collected will be able to reverse the damage.