Counting the cost of Bihar's liquor prohibition on state's revenue, others

The alcohol ban in the state, in force for nine years now, has not impacted education spending much, but literacy outcomes leave a lot to be desired

Alcohol prohibition has been a contentious issue in India. Barring Gujarat, and to some extent Bihar, where the ban on liquor has been in place for nine years, a few states have attempted to enforce it but failed.
 

In the past, Haryana and Andhra Pradesh also imposed a ban on alcohol.
 

In Haryana, the ban lasted for 21 months, from July 1996, before being lifted by the same coalition that had imposed it — the Bansi Lal-led Haryana Vikas Party and Bharatiya Janata Party.
 

In Andhra Pradesh, the ban was in effect for a little over 26 months, starting January 16, 1995, under then Chief Minister N T Rama Rao (NTR) of the Telugu Desam Party.
 

His son-in-law and then chief minister, Chandrababu Naidu, lifted the ban in 1997-98, although the ban on Arrack initially remained in force.

 

The prohibition on Arrack had been introduced even before NTR, in October 1993, by his predecessor K V Bhaskara Reddy, then chief minister from the Congress.
 

The Nitish Kumar government enforced a complete ban on alcohol in Bihar on April 1, 2016. Now in its ninth year, the ban may remain in force at least until the next Assembly elections in 2025.
 

Prashant Kishor, who previously helped various political parties win at the hustings, launched his own political party — Jan Suraaj — and promised to lift the ban if elected in the next Assembly elections. He estimates that the revenue Rs 20,000 crore a year from alcohol would be used to overhaul the education system in the state over the next 20 years. He projected the total revenue from alcohol at Rs 5 trillion over this period.

 

While it is too early to predict the outcomes of the next Assembly elections, this development gives an opportunity to assess the revenue and other implications of the alcohol ban in Bihar.
 

Excise duty collections from liquor, spirits, and other related products contributed around 12 to 16 per cent of the state’s own tax revenue (OTR) annually during the past five years of the ban’s existence. These collections grew at a compound annual growth rate (CAGR) of 9.7 per cent during this period, even as they declined by 2 per cent in 2015-16.
 

At this CAGR, the exchequer would have received just over Rs 6,500 crore in 2023-24 and Rs 7,000 crore in the current financial year.
 

It should be noted that sales tax and value-added tax are also imposed on alcohol, but these breakdowns are not provided in the budgets. As such, the estimated loss to the exchequer at Rs 20,000 crore seems somewhat exaggerated at present.

However, this figure may not be so if the revenues from alcohol continue to grow at a CAGR of 9.7 per cent over the next 20 years.
 

The collections in 20 years, starting from 2027-28, the first full year of prohibition after the Assembly elections, would be around Rs 4.8 trillion, quite close to Rs 5 trillion. Spread evenly over the years, this would mean an average annual revenue of around Rs 24,000 crore from alcohol.
 

Bihar’s average share of OTR in revenue receipts stood at 26.8 per cent during the past five years of alcohol sales, while it fell to 23 per cent during the nine years of prohibition, including the current financial year (Budget Estimates).
 

However, when comparing these figures, it is important to note that Bihar, like other states in the country, faced tough Covid years in 2020-21 and 2021-22.
 

The state’s OTR suddenly declined by around 7 per cent in 2016-17, the first year of prohibition, and has fluctuated

since then.

 

A similar pattern was seen in Haryana and Andhra Pradesh, where the OTR of the states declined in the first full year of alcohol prohibition.
 

Did prohibition hit expenditure on education in Bihar?
 

Not really. While the state’s expenditure on education as a proportion of total expenditure did drop in the first year of prohibition, it has since recovered.
 

During the past three years, including the Revised Estimates for 2023-24 and Budget Estimates for 2024-25, Bihar’s expenditure on education, sports, arts, and culture as a proportion of total spending stood at around 20-21 per cent. In contrast, Uttar Pradesh — the highest collector of alcohol revenue — spent between 10.5-14.5 per cent during the same period. Karnataka, which collects the second-highest excise duty from alcohol in the country after Uttar Pradesh, spent between 11-12 per cent of total expenditure on education, sports, arts, and culture over these years.

 

However, Bihar still has much catching up to do to reach the national average in this regard. Despite some improvement, its female literacy rate (for ages 15-49) was 16.5 percentage points behind the national average in 2019-21, compared to 18.8 percentage points in 2015-16. Meanwhile, male literacy remained around 8 percentage points below the all-India level during the same period, according to the National Family Health Survey.
 

Crime rate
 

It may be argued that the impact of prohibition should not be judged solely in financial and economic terms. Its effect on society at large is crucial. Bihar has little to boast about in this regard.
 

The number of violent incidents in the state constituted 11.3 per cent of the national total in the pre-prohibition period of 2015. This share inched up to 11.4 per cent in 2022, according to the latest data from the National Crime Records Bureau.
 

The share of incidents of crime against women rose marginally, from 4.2 per cent to 4.5 per cent during this period.

TAKING CUES
 

Jan 1995: Andhra govt imposes liquor ban in the state; lifts it after 26 months

Jul 1996: Liquor ban imposed in Haryana by the coalition govt led by CM Bansi Lal; lifts ban after 21 months
 

Apr 2016: Bihar’s Nitish Kumar govt bans liquor. It may remain in force at least till the next assembly elections in 2025