Ponty Chadha's world

How politics and state liquor taxes lead to lawlessness

Investigations are still ongoing into the confused few seconds just over a week ago when Gurdeep Singh “Ponty” Chadha and his brother Hardeep Singh Chadha were both shot and killed in Chhattarpur, in one of the farmhouses that dot the green, expensive and dangerous southern margin of Delhi. Seven recreations of the crime have not, reportedly, helped. Meanwhile, the fallout of the murders has taken a political turn. The Bharatiya Janata Party (BJP) has apparently accused a minister in the state government of Delhi of having links to Hardeep Chadha — the latter’s spirits company was reportedly given a contract to operate buses in South Delhi, which it only partially fulfilled. Another accused in the shootout is an expelled BJP leader from Uttarakhand, Sukhdev Singh Namdhari. And, of course, Ponty Chadha’s funeral was attended by major political figures from the states around Delhi, where his liquor and real estate business was located — including Ram Gopal Yadav, a Rajya Sabha MP and cousin of the Samajwadi Party’s Mulayam Singh Yadav, and Om Prakash Chautala, the former chief minister of Haryana.

The embeddedness of Ponty Chadha and his brother in the politics of Haryana, Uttar Pradesh (UP) and Punjab – remember, some of those involved in the shootout were Punjab policemen deputed as security officers for the Chadha brothers – is not surprising, given the business they were in. Ponty Chadha’s Wave Group was a Rs 10,000-crore empire, which ran 16,000 liquor shops in UP alone. Most of UP’s liquor business was routed through the Wave Group; and it financed grandiose building projects in Noida, the fast-developing part of UP that serves as a suburb to Delhi, with the proceeds. The Chadhas’ near-monopoly in UP follows on from a similar exclusive alcohol distribution licence they were granted in Punjab in 1997; altogether, liquor represents 70 per cent of the group’s revenue. Clearly, like real estate, making outsize profits in the liquor business requires the ability to “manage” government permissions. If, next year, the Samajwadi Party government in Lucknow decides to auction liquor wholesale licences instead of handing them out to a monopolist for a fee, the Wave Group’s profits will take a big hit.

Yet state governments may have reasons beyond graft or political financing to turn to the Ponty Chadhas of the world when it comes to the liquor trade. Liquor is subject to different duties and tax rates in different states. Inter-state smuggling, therefore, can cause major holes in state revenues. Businessmen like Ponty Chadha served, essentially, as subcontractors for the excise department in a way, running private task forces charged with cutting down on smuggling. Since smuggling would hurt the Wave Group’s monopoly as well as the state government’s tax bill, some governments came to the conclusion that it was a win-win arrangement. Similar calculations have determined allowing private real estate developers to corner the market in building India’s new cities; they can “manage” the environment of angry or avaricious farmers and inter-state co-ordination far better. Yet the violent deaths of the Chadha brothers should reveal how dangerous such thinking turns out to be in the long run. Subcontracting essential government services, like enforcement of excise laws, to private parties leads to an all-pervasive lawlessness. If the government cannot enforce a law itself, it should repeal or suitably amend it. State governments must be persuaded to look for alternative forms of revenue, even if they come with a loss of political discretion.