Dichotomy of the Alcohol Business

Raja Mukherji, a veteran in the alcoholic beverage sector, takes a closer look at how government policies affect the alcobev business and almost always create a negative force that hampers its growth. He also suggests a way out of this quagmire.

Lately, I have found myself intrigued by contrasting headlines. One highlights the prohibition of liquor sales within a 100 ‘kos’ radius of the Ram Mandir, while another announces that GIFT City in Gujarat will permit the sale of alcohol. Another headline that caught my eye revealed that Saudi Arabia, known as one of the most conservative countries, has opened its first liquor store for non-Muslim diplomats. These headlines underscore the evolving perspectives on prohibition in different parts of the world.

However, in India, certain states seem to be grappling with a dichotomy in their approach to this issue.In India, the matter of prohibition was influenced by the thinking of Mahatma Gandhi that led to the inclusion of Article 47 into our constitution.The practical implementation of the prohibition policy started as early as 1939 when the Bombay Aabkaari Act of 1878 was amended to start prohibition. Post Independence, in 1949,total prohibition was enforced in the territory of Bombay (undivided Maharashtra and Gujarat). In 1950, there was a partial rollback in large parts of Bombay and was then again prohibition way re-introduced there in 1958 When finally, in 1960, the new state of Gujarat came into existence, Maharashtra lifted prohibition and Gujarat continued with complete prohibition.

Gandhi & Bose’s Take

While doing a bit of research, I came across a fascinating exchange of views of two of India’s stalwarts of the freedom movement – Mahatma Gandhi and Netaji Subhash Chandra Bose.Mahatma Gandhi was a strong votary of prohibition. His belief was based on alcohol’s destructive impact on the poor and the downtrodden, although he appreciated the economics of revenue from alcohol. Gandhiji’s views can be summarised in his own words published in ‘Young India’ on March 26, 1925.

“The total excise revenue of the state of Travancore in 1922 was Rs 4,694,300 against land revenue Rs 3,818,652 and out of total revenue of Rs19,670,130. Thus, the liquor revenue is a terrific item. I was told that drink was most prevalent among the Christians and that it was decimating hundreds of homes and bringing poverty and disgrace upon thousands of men otherwise able and intelligent,” he wrote. Prohibition was to come into force from August 1, 1939.

On July 10, 1939, a statement issued by Netaji Subhash Chandra Bose, while supporting the moral imperative behind the prohibition, pointed out some flaws in implementing the policy. “Prohibition is a measure of social reform and no social reform can be successfully brought about without winning the goodwill of the people. The fact that there was opposition to the prohibition scheme by influential sections of the society showed that the government has not been able to carry with them the approval and the goodwill of the people. The Parsi community was up in arms against this move of prohibition. The prohibition scheme will lead to illegal distillation, a rush to the wet zones every evening and particularly over weekends and holidays,” he opined.

Bose further said, “I may say that it is difficult to approve of a method which involves the sudden imposition of an additional tax on Bombay alone in order to make good the loss of excise revenue. With millions of half-filled stomachs, hundreds of thousands dying every year of preventable diseases and 92 per cent of our people still unable to read or write, I consider it no part of statesmanship to raise additional money by heavy taxation, not one rupee of which would go towards the better fulfilment of stomachs or saving human lives or making our people more literate.” The proposal was to increase property tax by 10 percent to finance revenue loss from prohibition.

Present Scenario

In 2024, the points raised in 1939 citing the reasons of a short-sighted policy intervention pertaining to prohibition are even truer. Wherever or whichever part of the country has experimented with prohibition, one comes across deaths due to consumption of illicit liquor.If one sees the ‘watering holes’ surrounding the dry states, one will realise the futility of the effort to enforce prohibition.In an even more bizarre request, the Gujarat government in 2018 demanded Rs 9,000 crore as compensation from the 15th Finance Commission as that was the loss to the state exchequer due to prohibition.

To enforce prohibition, the Bihar government not only gave up around Rs 3,000 crore in excise but is now spending an equal amount to try and enforce prohibition.Interestingly, if one follows the headlines for the reason of opening an alcohol store in the Kingdom of Saudi Arabia, it seems the prime objective is to tackle smuggling of alcohol products into the region. Gujarat is ready to allow the introduction of alcoholic beverages in the GIFT City to attract foreign investments.Only four states in India representing 200 million or about 14 per cent of the country’s population has prohibition laws in place.

To this end, the ISWAI report suggests that it is time that an industry which contributes close to 2 percent of the nominal GDP is treated as an ‘industry’ and a serious effort is made to ease the business in this sector. The way forward for the policy makers is to reset and revisit the entire business of the alcohol beverage industry and work towards the adoption of a national level alcohol policy to get uniformity in the industry.

For this the entire industry needs to come as one and start working through this quagmire so that in the years to come we can be a world leader in the alcoholic beverage space.

Raja Mukherji has been associated with the alcobev sector in India since 2001. He joined the sector from The Coca-Cola Company to be the Sales Controller for the North India market for UDV . His last assignment in a leadership role was as CEO for the JV firm AB-Inbev. He currently runs a boutique consultancy firm. Amongst his major clients are United Spirits Ltd & his firm has been Business Advisor to Thales in India, previously.