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A dangerous mix

While the liquor lobby is powerful in all the States, the cartels formed by the retailers have of late begun to tell on Government revenue, writes Suresh Nambath.


LIQUOR AND politics make for a heady cocktail. When they do not directly dabble in politics, liquor barons fund political parties and purchase proximity to those in power. At the next lower rung, liquor shop merchants either double up as middle-level politicians, or bribe legislators and policemen so that they can carry on their business without any "official interference".

The volumes of the liquor trade and the money generated by the brewers and distillers and distributors and retailers not only fills the State treasury as excise revenue and sales tax, but also lines the pockets of politicians as bribe and goodwill payments.

In Andhra Pradesh and Karnataka, liquor barons have become Members of Parliament. In Tamil Nadu and Kerala, they have identified themselves closely with one political party or another.

While the liquor lobby is powerful in all the States, and liquor barons continue to feed top politicians, the cartels formed by the retailers, the liquor shop merchants, have of late begun to tell on Government revenue. The retailers survive, not by supplicating the top political leadership, but by influencing the second-rung party functionaries and local policemen. Their influence thus is at the level of enforcement, and not in the formulation of policies.

Generally, Governments have tended to favour the liquor barons, sometimes one set of liquor barons over others. The retailers have looked up to the local politicians and policemen for protection. Huge margins for the liquor shop owners, who have to pay high licensing fees or auction amounts, can come only through irregularities and malpractices such as selling spurious and contraband liquor, keeping the shops open beyond the stipulated hours, inflating the price, and allowing illegal bars.

Last week, the Tamil Nadu Government, in a radical change of policy, decided to entrust retail trade of Indian Made Foreign Spirit to the wholly owned Government company, Tamil Nadu State Marketing Corporation, and the cooperatives. This followed cartelisation of the retail trade, which effectively prevented the Government's attempts to raise the revenue from the liquor industry.

Tamil Nadu introduced the lots system from 2001-02 in an effort to end the malpractices in the retailing. Under this system, replacing the earlier auctioning, applicants for shops were identified on the basis of lots after they agreed to pay an amount fixed for each shop on the basis of potential revenue.

However, the cartels of liquor merchants ensured that a sizeable number of shops remained unauctioned. Indeed, a number of applicants withdrew after having shops allotted and sought a refund.

Attempts to auction the more than 350 IMFS shops unsold in the general auctions faced stiff resistance from the shop owners and led to litigation. In 2002-03, only 5,300 of the 7,000 notified liquor outlets could be auctioned due to the cartelisation. This excise year, Tamil Nadu first adopted a system of selection of applicants based on "merit". District level selection committees consisting of two retired judicial officers, not below the rank of district munsiff, were to scrutinise applications on the basis of specific pre-announced eligibility criteria. Also, only one licence per applicant was to have been given.

But far from breaking cartels, the system only resulted in reducing the number of applicants, though many had bought application forms. Thereafter, the Government was convinced that the only way to break the cartels was to let the State-owned TASMAC handle the retail trade.

However, the other side of the story is that the Government has been consistently increasing the number of notified outlets in a bid to increase revenue. In 2001-02, the number of notified shops was increased from 4,700 to 6,000. The next year, the number went up to 7,000. In the current year, another 1,500 shops have been added to the list.

The Government's reasoning is that the increase would prevent the sale of illicit liquor, especially in the rural areas. As the remote villages, which at present do not have IMFS outlets, are the targets of illicit distillation, the liquor-consuming people in such areas would switch to IMFS if new shops were opened for them. The greater the number of shops in areas prone to illicit distillation, the less would be the sale of the illicit brew. Or so the argument went.

An earlier attempt at curtailing illicit liquor was the introduction of 100 ml liquor bottles, which were given excise duty concessions so that they could be sold cheap. However, far from substituting the illicit brew in the rural areas, the cheap 100 ml liquor was threatening to replace the unsubsidised liquor sold through the regular outlets. Even though the total number of cases sold went up, the revenue fell. On an average last year, the Government obtained about Rs.100 crores a month as excise revenue and another Rs.150 crores a month as sales tax.

While there is appreciation of the move to break the syndicate of liquor merchants, the question that remains relates to the continuing dominance of the market by a few manufacturers.

There are five manufacturers in Tamil Nadu: Mohan Breweries and Distilleries, Empee Distilleries, Southern Agrifurane Industries, Balaji Distilleries and Shiva Distilleries. Apart from them, only select products from other States are allowed to be sold in Tamil Nadu.

Not surprisingly, the liquor shop owners whose influence stops with the second rung of politicians and policemen are the first to come under the Government scanner.

The decision to allow sales exclusively through TASMAC reduces the scope for local policemen to get their mamool for ignoring malpractices. Many of the liquor shop owners in the cities belong to those under the patronage of politicians.

The liquor shops with the greatest potential for generating revenues are in the urban areas where liquor merchants with Opposition party connections dominate.

What the Tamil Nadu Government needs to do is to follow up the crackdown on the liquor shop merchants with a change in policy that would end the monopoly of the syndicate formed by liquor manufacturers.

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