Delhi’s proposed excise policy has latent danger of monopoly

What is being marketed as a liberal policy of lowering the permissible age limit of consumption of alcoholic beverages from 25 years to 21 years is actually a proposed policy draft, which, if becomes a reality, will benefit a handful of large players at the expense of the large section of consumers & eventually the state exchequer.

Delhi has about 880 retail liquor outlets and around 800 bars and it is the only state which has a mix of government corporation run retail liquor shops & private-owned retail liquor shops. The Delhi government corporations which run the retail liquor shops in Delhi are DTTTDC, DSIDC, DCCWS and DSCSC.

The stated policy of Delhi for liquor manufacturers is to have the lowest ex distillery & brewery price, which needs certifications at various stages. This in turn means India’s manufactured alcoholic beverage brands have some the cheapest MRPs in India, in Delhi market.

According to the proposed excise policy of Delhi, all liquor shops will be privatised, which means all corporation shops will be closed and handed over to the highest bidder of that shop. The shops will be allotted as a cluster of 27 shops per zone with a minimum EMD of Rs.30 crore per zone  and a one- time non refundable Rs. 10 lakh fee.

Raja Mukheri is a liquor industry veteran. Currently he is an independent advisor to companies like Thales, a French MNC, MB Powers amongst others.

What this implies is that instead of opening up the sector and freeing the trade from the clutches of the monopolies created over time by the corporation shops, the government is replacing the Government Corporation monopolies with private monopolies.

The Rs.30 crore per zone EMD is a huge entry barrier & this writer feels that only the large liquor contractors like Raju Chadha (late Ponty Chadha’s younger brother), who still controls 20 percent of UP’s retail liquor outlets  or ADS group (which has sizeable business in Haryana) or Lake Forest Group led by Neeraj Sachdeva of Gurugram or the Singla’s of the MAPSKO Group (Discovery Wines of Haryana) will be able to organise such huge funds and create a monopoly of liquor cartels in Delhi.

It is worthwhile to note that during the recent years, states like Uttar Pradesh, which had the late Ponty Chadha-led monopoly for 11 years, or Haryana, which had a cluster of six shops to a zone, dismantled such monopolies in liquor business and this led to large increases in their revenues.

For example, Uttar Pradesh’s revenues have moved from growth of 2-3 percent per annum to almost 8-10 percent per annum post the dismantling of the monopoly in liquor business.

Why are monopolies in liquor retail bad?

The word monopoly itself has a negative connotation especially when it comes to any business of any kind. In the case of alcohol business in India, monopolies in retail trade results in the value chain getting skewed towards the retailer/s & the established companies, and the state exchequer always loses.

In such monopolies the retail trade is expected to garner around 30 percent of the value chain & the state is expected to end up getting around 55 percent. It is highly possible that these monopolies then introduce their own brands produced in their own distillery/ brewery & end up creating a large chain of cartel from production to consumption stage.

If anything, this proposal to create 27 retail zones is expected to lead to considerable monopoly with each group controlling roughly around Rs. 200 crore of state exchequer revenues. This constitution of this cartel will not only enable the cartel to dictate terms with the suppliers but eventually with the Delhi government as well when time would come for renewal of the liquor outlets.
The Delhi government ought to have a long hard look at the suggested excise policy once more & create a fair system for all stakeholders to thrive. Then only it can measure up to its image of a fair and transparent government for the people.