Phased prohibition takes off as AP aims to eliminate all bars by 2024

After reducing retail outlets by 20% to 3,500 for the new excise year starting October 2019, state govt last week issued orders to cut down on the number of bars by 40% after new bar licenses are issu

The liquor business has been undergoing quantum changes in Andhra Pradesh ever since the Y S R Congress government began implementing phased prohibition, a promise the party made to women when it was in the Opposition.

Under its phased prohibition policy the government proposes to bring down the number of retail outlets and bars gradually to zero by the final year of its five-year term in 2024.

After reducing the number of retail outlets by 20 per cent to about 3,500 for the new excise year starting October, 2019, the government last week issued the orders to cut down on the number of bars by 40 per cent when new bar licenses are issued in January 2020.

Citing the October sales figures, the Reddy government recently said its steps towards reducing alcohol consumption in the state had already started showing results. In October 2019, there was a 27 per cent drop in IMFL sales to 2.36  million cases from 3.23 million cases a year ago, and a 56.4 per cent fall in beer sales to 1.04 million cases from 2.39 million cases during the same period, according to the government data.

As part of the phased prohibition, the government had taken over the retail business by opening state-run liquor shops, and raised the price of alcohol being supplied to bars by 40 per cent, besides increasing the bar license and registration fee effective January 2020.

Though wholesale liquor business was a government monopoly under successive governments in the undivided AP, this was the first time that the government of a Telugu state took over even the retail business, just like in neighbouring Tamil Nadu.

It was expected to take a while for the intended and the unintended consequences of the government's prohibition policy to be visible on the ground, even though one of the early effects of the move were already highlighted by the government -- the decline in sales volumes in the first month of its implementation.

Chief minister Y S Jagan Mohan Reddy argued that with the gradual implementation of the dry law, his government will be able to achieve the intended goal without any adverse impact, unlike the previous blanket ban of the 1990s that had been lifted within three years when N Chandrababu Naidu was chief minister.

After the removal of the dry law, liquor consumption in undivided AP grew by leaps and bounds to become the biggest revenue earner for the state exchequer after commercial taxes. This made the government the biggest beneficiary of the liquor business in terms of revenue.

Following the the bifurcation, the AP state exchequer gets Rs 17,000-18,000 crore a year from various taxes and margins on the sale of liquor and beer, while manufacturers or suppliers make Rs 7,000 crore.

Beginning the day with liquor has become a routine among most urban and rural working-class males, while women, who face the brunt of men's addiction to drinking, often raise their voice against sale of liquor. The last major anti-liquor movement was started by a group of women in Nellore district in 1993. Realising the potential of their protests, Telugu Desam Party founder N T Rama Rao promised a liquor ban during the 1994 elections and came to power a second time. Now it is Jagan's turn, but he has a different formula.

"I don't think the reduction of shops or the change in sale timings would make a great difference, as those who want to drink will some how find their own channels. Since the government wants it to be a phased affair, the effects wouldn't be very disruptive either for companies or for the government. If there is any dip in sales in AP, the companies would make up for it with sales growth in neighboring states like Telangana, where the liquor market is already growing at 30 per cent," said a distillery owner on condition of anonymity.

If the government's revenue growth is impacted due to lower sales volume -- as it apparently was this October -- it would put further pressure on the government, which is already facing a severe financial crisis, say observers. The fund crunch was so acute that the state withheld payments of Rs 2,000 crore to liquor suppliers for over three months, according to sources.

Government shops are currently selling the available products in the light of non-payment of bills to the suppliers. When the issues in supply chain stabilise, the role of supervisors in government outlets would become crucial in the promotion of brands.

McDowell and other brands owned by Diageo, Seagrams, and Officer's Choice of Allied Blenders and Distillers (ABD) are popular among liquor consumers in AP, according to an industry representative. Observers say that it will take some time to see how these brands fare in comparison to each other under this phased prohibition.

"As it happened in a neighbouring state, the government outlets will play a big role in determining which brands of liquor people would consume. A company might offer an extra incentive for promoting its products even to a private retailer like me. But I will also keep consumer preference and demand for various products in mind even while accepting such inducements. But in case of government outlets it is going to be only one way," he told Business Standard while refusing to be quoted for the story.

The Telangana government is unlikely to follow AP's example as alcohol consumption was never an election issue, partly because liquor consumption was a more socially accepted practice in this region, even though the consequences of liquor addiction among the poor are same as in the sibling Telugu state.