Spirit of federalism: Centre must allow states to resume liquor sales

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Published: April 29, 2020 4:01 AM

This trend continues even for local governments, which come to rely more on state transfers to run the administration.

More important, there is the fear that crowding at the liquor shops will defeat social distancing. (Representative image)More important, there is the fear that crowding at the liquor shops will defeat social distancing. (Representative image)

It is easy to push a narrative against the states demanding resumption of liquor sales, given the socioeconomic threat that alcohol addiction presents. Also, alcohol consumption is generally held to have a negative impact on health; in the middle of a pandemic, facilitating this would seem counter-intuitive. More important, there is the fear that crowding at the liquor shops will defeat social distancing. However, the lockdown has severely impacted economic activity across the country—the phased lifting certainly doesn’t mean businesses going back to pre-corona days—and state governments won’t have much to look forward to in terms of SGST collections. With revenues drying up—VAT collections from fuel sales are likely a trickle now—and demand for support packages for residents rising, liquor sales would probably be the only way most states can earn. Data from RBI shows that liquor revenues account for 10-15% of the states’ own-tax revenue. Given that states’ total own-tax revenue for FY 20 was budgeted at `14 lakh crore, excise collections from liquor would constitute `1.5-2 lakh crore. The actual collections could be higher once revenue from stamping, weights and measures applicable to liquor, VAT on alcohol, etc, are considered. In such a scenario, asking states to forego about 0.7-1% of the GSDP—even as they are demanding a 1% relaxation in FRBM—can have little justification, given that revenues from other sources have or will dry up in the coming months. There are hardly any sales of automobiles, and one can expect the property-related taxes and stamp duties to be depressed for a long time.

The Centre is right in wanting to curb crowding. But, given most states are ready to extend the lockdown, certain relaxations can be extended, accompanied, of course, with strict enforcement of social distancing. Even as the Centre allows opening up of standalone shops, it needs to understand that if social distancing is being enforced for essential services, it can be enforced for liquor shops too. Also, why can’t liquor be home delivered, as Punjab is proposing, once the age of the person ordering it is confirmed?

States, for their part, need to seriously relook their revenue strategies. An analysis of states’ budgets shows that states’ collections from own-tax and own-non-tax revenues have been decreasing for the past two decades. In 2000-05, states’ average own revenue accounted for 62% of the total receipts, in FY20, this had fallen to 52%. States increased reliance on central transfers, and alcohol and fuel duties, has been due to their inability to collect revenues from other sources.

This trend continues even for local governments, which come to rely more on state transfers to run the administration. Based on a Janaagraha analysis, Economic Survey 2017, had highlighted how Bengaluru and Jaipur, for instance, were collecting only 5-15% of the property tax estimated. So, while OECD countries have an average property tax collection of around 1.9% of GDP, India’s is 0.2%. States need to rope in technology to map land development better to realise larger revenue collections. Else, they can hardly expect to overcome their liquor dependence.

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