New Booze Policy For Delhi: What Kejriwal Government Got Right, What It Got Wrong And How It Can Improve Further

The national capital of New Delhi is set to witness a transformation in its booze market, thanks to the new excise policy announced by Deputy Chief Minister Manish Sisodia on Monday (22 March).

The policy which has been in the works since September 2020 was recently approved by the Group of Ministers of the Government of National Capital Territory currently ruled by Arvind Kejriwal’s Aam Aadmi Party (AAP).

As is his wont, Chief Minister Kejriwal patted the back of his own government stating that the latest reforms will break the back of the liquor mafia.

"Excise reforms announced today will act as a major blow to liquor mafia in Del. The mafia will do everything to obstruct these reforms. AAP govt has ended mafia raj in many sectors like education, water, elect, health etc. We r committed to reforming this sector too (sic),” he tweeted.

His deputy Sisodia informed during a press conference that this mafia operates around 2,000 illegal shops inflicting a loss of anywhere between Rs 1,500-Rs 2,000 crore to Delhi’s exchequer.

“In the last two years, the excise department has seized seven lakh bottles of illicit liquor, arrested two thousand people and shut down hundreds of shops of this liquor mafia. Now their whole business will close down (with this new excise policy)," Sisodia claimed.

The language and tone employed to justify reforms is quite typical of AAP.

The moral and upright Kejriwal is standing up to the corrupt and immoral mafia, this time in the liquor industry. The symbolism is right up AAP’s alley which considers itself as a righteously revolutionary force fighting alone against all evil forces.

Nonetheless, one is always happy to ignore the unbearable morality-laced rhetoric from the politicians if it does the trick of introducing commonsense public policies. Before we delve into the details, let’s take a stock of the liquor market in Delhi.

There are around 720 liquor shops in the city. Out of these, 460 are government shops, 260 are private out of which around 160 are located inside shopping malls. Additionally, there are more than 1,000 restaurants, hotels and pubs which serve booze on their premises.

Despite the lopsided distribution in favour of the government, it’s the private shops that are contributing more to the excise revenue, signalling massive corruption and leakages in the government-operated shops.

The ownership by the government of these 60 per cent of the retail shops resemble the multi-layered mess that is the governance in the city, parts of which are run by the Centre (even here by different ministries like Housing, Home and Defence), some departments by the Delhi government, some under Lt Governor, some areas are exclusively the domain of municipal committees (which can be under hold of different parties) and so on.

Similarly, 460 shops are owned by different agencies: Delhi Tourism and Transportation Development Corporation (DTTDC), Delhi State Industrial and Infrastructure Development Corporation (DSIIDC), Delhi State Civil Supplies Corporation Ltd (DSCSC) and Delhi Consumer’s Cooperative Wholesale Store Ltd (DCCWS).

What’s the result of the government having majority control in liquor retailing?

The government-run shops resemble prisons with grills separating the sellers inside (government employees) from the consumers outside who have to stand in serpentine queues which is not just a bad experience for everyone but also creates a lot of nuisance — traffic, law and order problems, etc.

This arrangement has also given birth to many other unscrupulous practices.

Brand pushing is one of them. Liquor manufacturers (especially the newer unestablished brands) bribe government employees in these retail shops to push their bottles for a fixed commission. When customers line up in front of the liquor shops and ask for their preferred choice, they are told that the certain brand is not in stock (even when it is).

The shopkeepers then offer an alternative (for which they have got the bribe). Customers have a few seconds to make up their mind before they are asked to step aside for obstructing the line. Sometimes the brands pushed are supplied directly to these shops bypassing the whole tax system thereby causing huge revenue loss.

Due to this (and difference in taxing quality and cheap liquor differently), the situation is such that there are scores of liquor brands whose operations are only limited to Delhi (thanks to ease of brand pushing).

Sisodia highlighted another ‘problem’ with Delhi’s liquor market — the stark difference between various regions of the capital, some of which are unserved or underserved and others over-served.

He pointed out that out of 272 wards, 79 have zero liquor shops and 45 have just one shop while 54 wards are over-served with some of these having more than 10 shops.

“This clearly shows that in Delhi the liquor sale distribution is very unequal. The maximum revenue is coming from 189 liquor shops of just 46 wards. This also shows that from other areas misappropriation of revenue is taking place," he said.

This needn’t necessarily be a problem. And not much misappropriation of revenue may be taking place due to absence of shops as I will explain later.

Nonetheless, let’s take a look at some of the changes announced by the Kejriwal government to improve the booze scene in Delhi, and analyse if they will really help in solving the existing problems.

First, the government has decided to lower the legal drinking age from 25 to 21. This merely recognises the reality on the ground. It was only a matter of time before the government realised that merely making a rule on paper won’t force the people to follow it.

Liquor was easily accessible to those below 25 in Delhi anyway. Keeping a higher age bar on paper was useless.

Additionally, the government has decided to enforce age-gating at premises which are allowed to sell liquor such as restaurants and pubs. Only those above 21 will be allowed entry (unless minors are accompanied by their parents or guardians). This is also a good move and in line with practices in metros around the world.

Second, the government has decided to exit the liquor retailing business completely. That’s a big change. All liquor retailing will happen via private players who will have to have premises of 500 square feet.

That means in a few months, Delhiites' experience of buying liquor is going to change drastically.

They would not have to line up in front of prison-like shops but would rather be able to walk in, surf the shelves without hurry and take their choice of liquor from the stores and pay in cash or digitally (which is very rare in government run shops as their card machines are always malfunctioning). All the brand pushing, swindling of money and leakages will hopefully stop and give a decent boost to Delhi’s revenues.

Third, the government has decided to not increase the number of liquor shops. Moreover, the existing shops will be distributed evenly across the capital so that the problem of underserved and over-served areas ceases to exist.

This is a bad decision and taken due to poor understanding of the market. The fact that some wards have no shops and some have 10 is not necessarily a problem. It could simply be due to demand factor.

As the map shown by Sisodia demostrates, the red areas (unserved or underserved) are mostly rural areas with lower population and thus possibly lower demand. Other red patches in the middle could be due to significant Muslim population (old Delhi and east-Delhi especially) where liquor shops are not allowed by the locals.

The blue regions which have six to 10 liquor shops in each ward are in posh localities of central and southern Delhi so it’s natural that there will be more shops there due to higher demand.

Now, if the government wanted, it could invite bids to open more shops in the red zones but instead the number of shops will be reduced in areas with higher demand (such as South Delhi) and increased in areas which don’t need them as much (such as rural Najafgarh).

This is daft.

Not only will it impact revenues but also encourage liquor mafia to shift operations to posh areas. Even if the worst doesn’t happen, it will overwhelm and overcrowd limited shops in posh areas which will not be able to meet the demand.

Fourth, towards ease of doing business, the government has decided to slash the number of permissions, do away with obsolete requirements, cut regulations, merge licences and make it easier for the hospitality industry to avail liquor licences. This has been done after receiving feedback from the stakeholders so one hopes it will be beneficial.

Fifth, the government has decided to push out cheap brands out of the Delhi booze market and have a proper system of checks to ensure that good quality liquor is sold in the capital. This is also aimed at increasing revenues but nonetheless is a good move.

As explained earlier, due to brand pushing by complicit government employees at retail shops, a whole system of local manufacturers has come up which push off-the-books brand to consumer and suppress quality brands. Cheap brands have low licence fee while good brands (whose demand is high) give the government higher revenue. Plus, there is additional excise duty on every bulk litre that is lost if the shopkeepers sell off-the-books local brands rather than good quality ones.

The new booze policy is largely in the right direction but the decision to not increase the number of liquor shops in unserved and underserved areas and instead doing equitable distribution of existing shops is going to do more harm than good, and may seriously hamper the government’s hopes of increasing revenues by Rs 1,500-Rs 2,000 crore straightaway.

There are a couple of reforms that the Delhi government should also consider to improve the booze scene in Delhi.

First, if it wants to encourage Delhiites to drink quality brands and not the cheap ones, it should not punish the former with excessive excise duties. Rather, it needs to come up with a rational tax structure.

Second, the tax structure on booze should be such that liquor is taxed based on not only brands (country liquor, Indian made foreign liquor, imported foreign liquor, etc) but also on the basis of alcoholic content.

Taxes on beer and wine need to be drastically cut while raising them on hard liquor so that more and more people prefer the former. Indians’ drinking habits are heavily skewed towards hard liquor and a big villain for that is the uniform tax structure.

Third, the number of liquor shops need to increase in Delhi. While Sisodia proudly claimed that the government has added a single shop since 2016, this is a big contributing factor to the growth of the liquor mafia he wants to finish off.

If legal shops fail to fulfil demand, the illegal ones will. Delhi has only 720 liquor shops against 1,190 in Mumbai and 1,794 in Bengaluru. Clearly, there is a lot of scope for improvement here.

Fourth, while increasing the shops, it can show other states the way forward in reforming the way liquor vends are auctioned. Basically, governments keep the liquor vends limited so that they earn a hefty fee in the bidding war between private players especially in areas which witness higher demand.

Rather, the government should do away with this licence-bidding-auction model and set a fixed amount for auction which can be decided in a transparent lottery system. This is the biggest thing that the government can do to ensure that only those with big bucks and muscle power do not enter the market.

Fifth, allow online delivery of booze. The main reason why this is still not allowed is due to the aforementioned system of auction and bidding where one shop in a posh locality has been earned at a higher rate than the one in a poorer locality. Online delivery will end the incentive for bidding. Moreover, there are various silly regulations on transport of liquor. The government will earn far more from online delivery of liquor than it does from bidding wars.

If it doesn’t want to try that, the least it can do is become an exclusive online seller of booze itself. It’s exiting the retail business because of corruption and lower revenues but all that problem can be solved if it moved to an online-only model (cloud liquor store, if you will). Since all dealings are online (including payment), there will be full transparency in sales and earnings and no avenue for corruption.