As the government relaxed the lockdown many people queued outside liquor stores. This drew a lot of attention, commentary and government reaction. In response, the Delhi government imposed an additional 70% tax on retail liquor sales; this move was to crash the demand and reduce the risks of a coronavirus outbreak.

The sense of moral outrage was compounded after a Bangalorean customer shared a Rs.52,000 liquor store receipt on social media. It caused the Karnataka excise department to book a case on the retailer for exceeding the maximum quantity permitted under law to be sold to a person at a point in time.

Liquor consumption in India

Forecasted alcoholic beverage consumption in India from 2016 to 2020

Is this overreaction justified and warranted?

Actually, both the moral outrage and the governmental overreaction is unjustified and unwarranted. Other than revealing public attitudes towards alcohol consumption, there is nothing surprising in the long queues, nor indeed in what appears to be an excessive amount of money spent at a liquor store.

Let’s look at the math of it…

It is neither decline in moral values nor dipsomania the reason behind long queues and huge cheques, but the actuality that all these stores were completely shut for seven whole weeks of lockdown.  If we look at the average adult per capita consumption of alcohol in India, it is over 120ml per week. If unrecorded alcohol—which includes country, home-made, and contraband spirits—is factored in, the weekly adult consumption could be as high as 250ml per week.

That’s the average during normal times. Moreover, consumption is likely to be higher when people are stuck at their homes. Additionally, people are likely to stock up some bottles in case an extension of lockdown is expected. Since one in three adults in India consumes alcohol, there are bound to be a lot of people, across age, sex, and income levels, who will line up outside retail outlets. A closer look at the Rs.52,000 receipt suggests that it might have been a shared purchase, with a common friend given the responsibility of buying on behalf of his friends.

Such long queues is not something uncommon.There were queues outside ATMs post demonetization. Same would have been the case outside grocery stores had the sale been halted for several weeks.Analysing this, we cannot single out the case of alcohol. Practicality would suggest that we accept this fact and design public policies that account for it.

Was it rational to disallow sale of liquor?

Theoretically, retailing of liquor was discontinued because people who designed this thought that it would lead to crowding thereby leading to spread of novel coronavirus. This sounds rational in theory, but selling, consumption and behavioural patterns vary vastly across the country. Had the policy designers looked into the math of alcohol consumption they would have realised how essential it is. Also, in true sense, a liquor store in city X is not much different from its neighbouring grocery/medicine store; Had they been open, those long queues could have been easily avoided.

Will additional taxes on liquor reduce consumption?

No, not quite!

Economist Santosh Kumar has found, the price elasticity of demand for spirits such as whisky and rum is  -0.139, which means the 70% increase in taxes reduces the demand by less than 10%. The elasticity is much higher for beer. As higher prices for these beverages might cause people to switch to hard liquor instead, which is even more dangerous.

Long queues at liquor store
Long queues at liquor store

Ultimate Analysis

Higher liquor taxes raise revenues for the state government under ‘sin tax’ but are inequitable because the poor will have to spend a larger part of their income. This would force them to switch to dangerous substitutes like hard liquor. State governments must not add to moral panic or pocket revenue at this time. One possible way states can reduce the risk of an outbreak is by permitting home delivery of alcohol under adequate safeguards. Mandatory proof-of-age at purchase and delivery as well as quantity limits. Compliance culture, enforcement capabilities and political economy will vary across states, so this might not work everywhere in India. But where it has a good chance, there is a case to permit it.

Alcohol consumption is not a moral issue. However, making it one really complicates its governance. Effective public policy should actually aim to achieve moderation in consumption. Also to manage its negative social effects on the other. Instead of deciding whether it’s moral or not and imposing unnecessary taxes in the name of controlling the situation.  Prohibition, bans on sales, government control of production and excessive taxation will only make our real problems worse. The queues will ebb out in a few days. But, the need for good policy makers will remain.

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