Total prohibition in Bihar is proving costly for residents of the state, literally. Hit by diminishing revenue due to ban on liquor sale and consumption, the state government had recently hiked VAT on almost every item sold under its jurisdiction. On Tuesday, the state Cabinet chaired by Chief Minister Nitish Kumar approved an increase in VAT on petrol and diesel, a move that is expected to effect a surge in prices of all other products. While the Value-Added tax (VAT) on petrol has been increased from 24.5% to 26%, the tax on diesel has been raised from 18 to 19 %.

The government believes the fuel price hike would contribute about Rs 22.42 crore to the state exchequer. According to experts, the increased VAT on fuel will increase the price of petrol by Rs 1.03 and diesel by Rs 75 paise. Hindi daily Prabhat Khabar quoted state chief secretary Brajesh Mehrotra as saying that the decision to increase VAT on petrol and diesel was taken after considering the existing VAT rates on the two fuels in neighbouring states.The increased fuel price is expected to increase prices of all goods as the the cost of transportation of goods will become costly.

The implementation of  liquor ban has effected a financial crunch in the state as the state is losing around Rs 4,000-Rs 5,000 crore per annum,  forcing the Nitish Kumar government to find alternative ways to enrich the state coffers. However, such ways are hard to find. According to The Telegraph, the sale tax collection in the state has declined by about 35% in the first quarter of the current financial year, while hospitality sector has been been badly hit by the liquor van. The Telegraph reports that several social welfare schemes in the state have been put on hold, and school teachers are not getting their salaries regularly. The financial crunch has also triggered a sort of political war as fund crunch has forced the state to deny implementation of several Central schemes including Prime Minister’s Crop Insurance Scheme, which require 50% financing (about Rs 500 crore per year) by the state.

While Nitish Kumar has embarked on a mission to promote himself as a Prime Ministerial candidate in 2019 General Elections, it remains to be seen if he can fix the financial crisis triggered by liquor ban in the state.