Will Liquor Sales Save The Trembling Economy?

liquor shops

On Saturday, the central government announced that the nationwide lockdown would continue for another two weeks. However, for the third phase of the lockdown, the government has relaxed a few restrictions.

One of the significant relaxations was to allow opening up of the liquor shops and outlets everywhere except the containment zones. As liquor is a state subject, the states were asked to take the final decision. Many state governments, in order to make up for the lost revenue during the lockdown, allowed the opening up of liquor shops from the 4th of May.

On the first two days of the third phase of the lockdown, people mobbed the liquor shops with mile-long queues and in turn contributing a big chunk of money to the exchequer. The government in Karnataka announced that it garnered 45 crores on the first day of the reopening of liquor shops. Uttar Pradesh recorded a whopping 100 crore worth of sales. Banking on this, the governments of Delhi and Andhra Pradesh increased the tax on liquor by 70 and 75 percent respectively.

As the revenue figures were announced, a debate sparked off on whether the economy has finally started its revival phase. Can alcohol save the economy? Does it?

Alcohol Economics

A state’s revenue is divided into tax-based revenue and non-tax revenue. A major chunk of government revenue comes from the tax-based revenue. Barring states like Gujarat and Bihar where there are prohibitions on the sale of liquor, other states collect a heavy chunk of revenue from alcohol sale.

As per the Reserve Bank of India’s report of the financial year 2018-19, around 10-15 percent of the state’s revenue comes from the sale of liquor. Liquor is the second or third highest contributor to the revenue of various states.

liquor economy
Courtesy: StarBliz

In 2018-19, the cumulative revenue of all the states and Union Territories from the sale of liquor was Rs. 1,75,501.42 crores that are slightly higher than the previous year figure of Rs. 1,50,657.95 crores. On average, states collect 15,000 crore rupees from alcohol per month.

So, does it revive the economy?

In his recent chat with Rahul Gandhi, Nobel Prize-winning economist, Abhijit Banerjee said that India has a huge problem of demand. He said that people who were as it is spending less prior to COVID-19 have almost stopped spending due to lack of money in their pockets. He reiterated his solution of making sure there is enough spending by the people which would help the economy to restart.

While states make up for their lost revenue, it is important on how the government will go about making sure there is enough money in the pockets of people who are likely to spend. The more the money in their pockets, the more the demand, and only when the demand is high, the limping economy can start to take off.

Although the liquor sales have given a breathing space for the governments, it is quite far from reviving the economy.