Delhi's liquor policy U-turn: Problems that interrupted the private party

“The buzz was missing from the club last evening,” says the president of a popular club in Central Delhi that serves liquor. Two birthday parties that were scheduled for Monday were put off, he says, and the number of people who usually come to the club to unwind after work was much lower. 

Monday was the first day when clubs and restaurants in Delhi had to refuse alcohol to visitors as the state government’s new excise policy was scrapped and there was no clarity on the way forward. Private liquor retail stores also remained shut. The new policy had allowed the entry of private liquor retailers for the first time. 

A fresh order, mandating status quo for a month, arrived later in the day. Now, provisions of the new excise policy will continue to be applicable till August 31. The club president quoted above says liquor is available from today.

Of course, this is subject to licensees submitting advance, pro-rata licence fees, security deposit and other levies for the month. The order, signed by Deputy Commissioner (Excise) Anand Kumar Tiwari, makes it clear that Delhi will revert to the “previous regime of excise duty-based policy (as was prevalent before November 17, 2021) with effect from 1st September 2022”.  

The Aam Aadmi Party (AAP) government in Delhi had brought in the new excise policy to pull the government out of the liquor vending business and also to increase revenue from the sale of liquor. In keeping with these objectives, it had invited bids from private entities by dividing the city into 32 zones and asking for licence fees inclusive of excise duty, value-added tax (VAT) etc. 

Under the policy, one bidder could bag one or more zones and thus open multiple retail outlets. The expectation was that the government would witness a significant jump in revenue and consumers would enjoy significant discounts. The state government had also said that revenue would increase to over Rs 9,000 crore in the first 12 months, from about Rs 6,000 crore in FY21. 

But within months of the new policy, allegations began surfacing about corruption in the award of licences and undue influence of some “powerful” groups in cornering the licences. Soon, there was political opposition to the policy. 

A liquor trader had earlier pointed out to this correspondent that a substantial number of “first-timers”, who had bagged the licences to retail liquor, and some old-timers were people or groups that had been blacklisted earlier. The trader did not want to be identified. Multiple efforts by this writer to source the list of people who had been awarded the licences had drawn a naught.

Then, last month, the newly appointed Lieutenant Governor, V K Saxena, ordered a CBI inquiry into alleged wrongdoings under the policy, after which Delhi’s Deputy Chief Minister Manish Sisodia announced its withdrawal. 

According to one licensee, who asked not be identified, many licensees had been finding the business unviable because of the inability to open all outlets allowed under the new excise policy. One reason for this was opposition protests over liquor vends in residential areas. 

Deep discounting by bigger retailers had also made the business challenging. “Discounting continues even though many retailers are losing money because sales provide cash flow for month-end licence fee payments. But the liquor trade is not united as price-fixing is arbitrary,” this licensee had said earlier. “The average monthly turnover of each store has fallen to Rs 3-4 lakh from Rs 5-6 lakh,” he had said. 

According to traders, things came to such a pass that by June, 90 per cent of the liquor in the market was selling at a nearly 50 per cent discount. In this scenario, only those licensees who also had manufacturing and wholesale operations were able to sustain the business. This led to many licensees surrendering their licences and the number of retail outlets nearly halved to about 300. Several Municipal Corporation of Delhi (MCD) wards had turned ‘dry’.

In an order on Monday, liquor stores in seven of Delhi’s 32 zones were allowed to be sealed as the licensees had not renewed their licences. 

There was no problem with the intent of the policy, says Rishabh Ranjan, founder of Beor360, an artisanal craft beer brand. “It was a progressive policy but it offered scope for cartelisation since it made the entry barrier so high that smaller players found it difficult to enter,” he says, adding, “Private players should continue to be allowed even if the old policy is re-implemented.”

Naresh Goyal, president, Delhi Liquor Traders’ Association, too is of the view that private retailers should be allowed under the old excise policy when it comes into effect next month. Members of the association will open the stores quickly, he says.

Last month, the association had filed a case in the Delhi High Court, terming the new excise policy unconstitutional since it sought a lumpsum payment of excise duty instead of per bottle.

Another retailer says that a turnover of Rs 150 crore as a condition for getting a wholesale licence was too steep for smaller players. “The state government had sought feedback before announcing the policy and a lot of the interested bidders gave it, too. But some players had considerable policy influence and were able to sway it to their benefit,” he says.

The way matters stand now, Delhi residents are again likely to cross over to neighbouring states to buy liquor. Hefty discounts could disappear, making popular brands expensive again. For now, the experience of walking into a well-lit, large liquor store and choosing one’s preferred brand will have to wait.