India - why banning alcohol is a bad idea

More and more Indian states are embracing prohibition of alcohol as the sure shot way to check crimes against women, rise in road accidents caused by drunk driving, and woo voters to win elections given the popular support prohibition has in many parts of India. The other motivator can be to check rising public health the expenditure caused by alcohol abuse. For instance, Government of Bihar, one of poorest Indian states - led by its Chief Minister Nitish Kumar who recently won the state election for the third time in a row, introduced strict prohibition in the state starting from April 1.

For instance, Government of Bihar, one of poorest Indian states led by its Chief Minister Nitish Kumar (who recently won the state election for the third time in a row), introduced strict prohibition on sale of alcohol in the state starting from April 1.

Another Indian state Kerala recently banned the sale of alcoholic beverages in all bars and restaurants except those in the 5-star hotels. Chief Minister of another Indian state Tamil Nadu, J. Jayalalithaa has promised to phase out sale of alcoholic drinks.

On the other hand, many Indian states had to fully or partially withdraw prohibition of alcohol either because of the resultant loss in the tax revenue, reduced preference for ‘prohibition imposing states’ among tourists, or simply because the ban on alcohol didn’t really work on the ground. Andhra Pradesh, Tamil Nadu and Haryana are best examples of Indian states that had to withdraw prohibition many times in the past. Mizoram, Manipur and Nagaland too have had uncomfortable experiences with prohibition and are considering repeal.

Yet, there is a growing demand for prohibition in other Indian states like Maharashtra, J&K and UP, even though such bans have never worked in the past. Prohibition doesn’t work, yet state after states have fallen prey to this apparently easy solution. It would be interesting to examine what explains this misadventure by Indian politicians?

There is a widespread belief among common Indian people that consumption of alcohol is the main reason behind rising crimes against women. Many Indians think that alcohol use is the most important factor contributing to an ever increasing number of road accidents in the country.

There is thus, a genuine expectation among voters, women voters in particular, that government must do something about it, and the imposition of prohibition is, thus the best way to do that.

Politicians seeking to capture popular votes in a democratic polity fall prey to this easy, though an impractical solution, to check the adverse impact of consumption of alcohol.  It’s another matter that it never works, and at the same time, creates newer problems to deal with. Yet politicians in India are increasingly open to considering prohibition as the panacea to deal with all kinds of social evils despite implementation challenges.

The reality

An analysis of road accidents data for 2011 - released by India’s Ministry of Road Transport and Highways - done by Indian Spend, a non-profit, shows that 77% of the accidents happened because of drivers’ faults. Further, 59% of such road accidents were caused by over-speeding while only 6.4% of them were caused by drunk driving. Thus, empirical data doesn’t support the correlation that drunk-driving and road accidents contrary to the popular belief.

Similarly, not many studies have been conducted to conclusively establish a causal relationship between consumption of alcohol and crime against women. However, even if such a causal relationship exists, is the imposition of prohibition a practical countermeasure primarily because of implementation related challenges and newer problems that it causes? Is prohibition the best way to deal with the problems of road accidents and crime against women?

The experience of prohibition in the US (1920-33) shows that a ban on mutually beneficial transaction never works in practice, however, good the regulatory intentions are. The US banned the sale of alcohol to check crime, reduce the tax burden on citizens caused by ever-rising expenses on maintenance of prisons, and to improve general health and hygiene in the country. However, prohibition failed on almost all these counts, though initially, it seemed to have decreased consumption of alcohol in the US.

 But, soon organized gangs took over the trade and alcoholic drinks were continued to be sold illegally though maybe with a reduced volume. That also increased corruption in the enforcement agencies, particularly police. Worse, it deprived the government an importance source of tax revenue, and indirectly increased the use of drugs and other harmful substances among those who couldn’t get alcohol – a worse outcome.

 India’s experience

 Indian states which had introduced prohibition have had similar experiences in the past. It’s important to realize that alcoholism is an individual problem and state has a limited role to play especially when prohibition makes the trade in alcoholic beverages highly lucrative for those who want to take the risk. The more stringent the penalties, the more lucrative the business becomes, and hence worth taking the risk.

Just a few days into the ban, a member of Bihar’s legislative council associated with the ruling JD (U) party was arrested for possessing dozens of Indian Made Foreign Liquor (IMFL) bottles. Besides, ban also corrupts personnel of the enforcement agencies especially police who can be paid to look the other way.

Moreover, some states banning while some others not, ensure the failure of the prohibition from day one. Many people from Gujarat, a prohibition state simply travel to neighbouring Daman to drink. They don’t stop drinking. The result is: tax revenue is collected by Daman rather than Gujarat.   Andhra Pradesh and Tamil Nadu have similar experiences. Post the ban in Bihar, sales of alcohol in neighbouring Eastern UP has gone up substantially.

 It’s important to note that taxes on liquors (excise and value added tax) account for as high as 20% of Indian states’ total tax revenues. For instance, the State of Bihar collected INR 36.6 billion from excise duties on liquors in FY 2014-15 which is likely to reach 40 billion rupees.

Similarly, in Tamil Nadu (where the state has the monopoly in the wholesale and retail sale of alcoholic beverages) made INR 261.8 billion in FY 2014-15 that is likely to cross INR 29.6 billion that is 30% of its tax revenue. Thus, the state which bans the sale of liquor in its territory becomes a net loser.

Given poor health of states’ finances in general, most states can’t really afford to forego the revenue coming from the sale of alcohol. Some of them like Bihar met with the challenge by increasing VAT taxes on sweets and snacks, dry fruits, sand, and cosmetics. It has to be seen how successful these additional tax measures are in compensating for the loss of taxes on liquor as many of these items are sold by unorganized retailers who deal in cash and often don’t pay taxes. 

However, revenue loss is not the only problem. Prohibition promotes bootlegging, and/or illicit trade in adulterated alcohol that often results in tragedies. Besides, banning legal liquor may drive more people towards illegal hooch or drugs. Between 2012 and 2014, close to 3000 Indian people lost their lives because of consumption of spurious liquor.

Prohibition imposed by DMK government in Tamil Nadu in 1974 led to a no. of deaths in the next two years due to consumption of illicit hooch adulterated with methanol. As result, ban was lifted in 1981 and alcohol was sold freely till 1897. Yet the state continued to experiment with prohibition subsequently. In 2001, over 100 people died after drinking methanol-laced alcohol forcing state government to monopolize the sale of liquor in Tamil Nadu. 

Again, Bansi Lal government in Haryana introduced prohibition of alcohol after winning the state election in 1996 but it could last for 21 months only. However, it took Haryana a revenue loss of Rs. 13 billion and dozens of hooch accidents to backtrack on prohibition.  

TDP leader N. T. Rama Rao banned alcohol in Andhra Pradesh in 1995 which was junked in 1997 by his son-in-law, Chandra Babu Naidu who later succeeded him as the state’s Chief Minister.

Prohibition also means loss of jobs for people employed in breweries, distilleries and hospitality industries. These side-effects of prohibition are too important to ignore.

Yet lured by political dividend, Indian states continue to experiment with prohibition given the popularity of the move (for instance) among women voters of Bihar who played a key role in getting Nitish Kumar’s party JD (U) re-elected. Women cutting across castes are a strong support base to him since 2006 when Nitish Kumar introduced 50% reservations for women in elections to local bodies. Other politicians want to emulate that model.

 The way forward

 To sum up, prohibition solves less no. of problems than it creates. A better approach can be to progressively raise taxes on alcoholic beverages along with boldly putting statutory warnings about the dangers of drinking on the package or containers to educate the people and then let them take a call whether they want to consume it or not. That will also protect tax revenue that Indian states badly need to spend on their social development programs including those related to de-addiction and women welfare.

Moreover, the major reason for rising road accidents is general neglect for speed limits, and poor traffic management including the lax enforcement of regulations on drunk driving. Cancelling driving licences of drunk drivers would be far more effective in checking road accidents caused by drunk drivers.  Similarly, better policing and investigation and improvement in conviction rates will put an effective check on crime against women.

However, that won’t be so popular a move when it comes to India’s vote politics. Besides, that calls for undertaking serious police reforms for which no Indian state has shown much interest as of now including the prohibition states like Bihar or Gujarat.

But, that may help to explain the preference for prohibition among an ever rising number of Indian states.

Please share your thoughts and experience even if you have a different take. Humans should differ because we're all unique in our own ways. It doesn't matter even if you have a different viewpoint from me. If we're not connected, it's time to get to know each other. You can follow me on twitter @RiteshEconomist and The Smart Consumer

A version  of this post co-authored by Prerna Sharma has been published in Nikkei Asian Reviw: Prohibition not good for India's Health

Another version of this piece has been published by The Indian Economist  Why the Ban on Alcohol Will Not Work

Related readings

Shekhar Gupta: alcoholism 0% populism 100%

13 people die in Bihar after having toxic liquor

An open letter to Bihar's CM Nitish Kumar opposing prohibition

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