The Aakhya Weekly #45 | Delhi's Liquor Labyrinth

Apr 28, 2023

In Focus: Madhushala I: How Delhi Drinks

This is the first of a two-part series on Delhi’s liquor business and the surrounding controversies. This part sets the context for the business, while the next part shall cover the ensuing political tussle.

“Aankh micholi khel rahi hai mujhse meri madhushala.”
(My alehouse plays hide-and-seek with me.)
- Harivansh Rai Bachchan, Madhushala

Purchasing alcohol in Delhi is no mean feat.

In the dynamic, bustling metropolis, where old shops and new alike overflow with wares, liquor stores are the last remnants of the License-Permit Raj. Every day, irate patrons with parched throats crowd outside tiny, decrepit shops, repeatedly yelling orders at the harried souls servicing them from behind an iron grill. The atmosphere is that of a cattle auction. Tensions run high. Initiative is everything. You muscle your way through the mob, right up to a small, square hole in the middle of the store’s facade, a crisp note in hand to flash at a moment's notice. And then, you hope. Hope that the cashier notices you. Hope that you're not pushed aside by someone stronger. Hope that your preferred poison is still in stock.

It need not have been this way. Drive outside Delhi in any direction and the landscape is dotted with sparkling monuments to alcohol. In just the last decade, Gurgaon has built up a premium alcohol culture. Its enormous, brightly lit liquor stores are lined, wall-to-wall, with potions and draughts of every description. Smartly dressed attendants scamper around, suggestions and prices at the tips of their tongues. Other cities on Delhi’s periphery - Ghaziabad, Faridabad and Noida - are following suit.

Why does Delhi languish, then? That, alas, is a tale of public finance and private profit, of noble intentions and unintended consequences, of morality, of hypocrisy and of intrigue.

State governments and alcohol

To understand Delhi’s relationship with alcohol, one must first understand how states earn money.

States have three broad sources of revenue: (a) taxes, (b) grants, and (c) the services they provide. Ordinarily, taxes dominate revenues. Most taxes come under the Centre’s ambit, leaving state governments with only a few broad heads to tax: State GST, sales taxes on fuel and excise duties on liquor (and in limited cases, on cannabis).

Excise duties present an odd conundrum. They are usually placed on “sin goods” - goods that harm the very people buying them, and those around. Excise laws, therefore, try to limit the sale of these goods. In principle, the costs they impose are meant to deter people from buying them. It is hard to keep people away from intoxicants, however, and the excise revenue they generate makes up a significant chunk of what goes into state coffers. In the year 2022-23, for instance, Delhi estimates a whopping INR 6,500 crore coming in from excise duties - more than 10% of its annual revenue. The more Delhiites drink, the more money Delhi has to pursue its other goals.

These twin impulses pull the state in opposite directions. States have the moral duty - and indeed a constitutional one - to ensure that buying alcohol is difficult. At the same time, a mature alcohol market with easy availability and ample choice is highly profitable to a state. How do you balance the two? Well, there lies the rub.

The old excise law

Alcohol in Delhi is governed by the Delhi Excise Rules, 2010 (Excise Rules).

This is a comprehensive, all-encompassing law. Think of every way in which you can interact with alcohol: perhaps you sell it, perhaps you drive into Delhi with alcohol in your car, perhaps you’re throwing a party, perhaps you’re merely keeping a bottle at home. All of this comes under the Excise Rules. The age limit for drinking in the city? Look at the Excise Rules. Why is advertising alcohol banned? Again, see the Excise Rules.

One cannot open a liquor business without a Government license. The Government gives out 54 types of licenses under the legislation - based on the type of the establishment, where it lies in the supply chain, the type of alcohol it deals in, and more - apart from 15 other types of permits.

The Excise Rules’ extensive requirements create a labyrinthine, opaque framework, prone to considerable red tape. Imagine, for instance, that you run a bar. Before you can apply for a liquor license, you must first obtain eight other licenses. The opinions of those around your bar will be sought before you can go ahead. Your license will specify everything. If you want to add a few extra chairs, you must ask for a special permit. If you want to move a couple of tables to the balcony, you must take a special permit. You cannot open a new bar counter. You cannot change the room where you store alcohol.

Of course, as anyone linked with policy understands, laws rarely play out as planned.

Where it all went wrong

Over time, licenses to private entities have dried up. As of 2020, 720 liquor vends service the 15+ million inhabitants of Delhi, well under those in cities like Bengaluru and Mumbai. Four government corporations - DTTDC, DSIIDC, DCCWS and DSCSC - run 60% of these, 460 stores in all. Shopping malls and airports claim 175 private stores, while there are only 85 private stores outside.

Leakages have sprung up across the Government’s elaborate revenue collection mechanism. There are tremendous profits - of up to 70% - to be made if one can by-pass excise laws. And so, scams run riot through Delhi’s alcohol industry. Wholesellers sell bottles, on the side, directly to retail buyers - saving taxes for every step they eliminate. Many duplicate individual bar codes across several bottles, making them seem like a single bottle for excise purposes. Networks of proxy owners consolidate entities across the value chain, giving them room to manipulate the system. Delhi’s excise department, with barely 40 officials, has been ill-equipped to check such rampant illicit activity.

Meanwhile, service quality has plummeted. Cartels eat up the few private licenses that are granted. For instance, a Hindustan Times investigation found that at least 42 licenses were controlled by only three people - in what is likely to only be the tip of the iceberg. Legally, you are only permitted one store. On the other hand, Government stores, as a 2020 Delhi Government report noted, routinely run losses. They offer poor customer service and limited choice - issues that corporations have been trying for long to remedy.

Liquor enthusiasts in Delhi, of course, face the greatest brunt of these issues. Neighbouring states, friendlier to the alcohol business, court Delhi’s richer alcohol clientele. The poor resort to illicit liquor concocted with cheap, dangerous material.

A new hope?

In November 2021, the Delhi Government announced a new excise policy, taking aim at these issues and looking to privatise major chunks of the city’s alcohol industry. For a few short months, there was an efflorescence of glitzy, new private stores across the city.

Soon, however, the new system collapsed…

Tune in to part 2, next week, for the tumult that followed.

This Week in Policy

Economy and Taxation

India’s tax base has significantly widened, and the ratio of its personal income tax (PIT) to GDP climbed from 2.1% to 2.9% in eight years. These improvements have been attributed to the introduction of new data sources in the Statement on Financial Transactions, and an increase in TDS codes.
The Centre has termed state taxes on electricity generation unconstitutional, and has directed them to withdraw any such measure. This comes in the aftermath of an imposition of a ‘water cess’ by the Congress-led Himachal Pradesh government on hydel projects.

Sustainability and Energy

Ministry of New and Renewable Energy has released month-wise bidding calendar for solar, wind, hybrid and round-the-clock capacity auctions till March 2025, totaling 50 GW of new capacity.
The government is mulling amendments to the Mines and Minerals (Development and Regulation) Act, 1957 to encourage exploration of deep-seated minerals (such as gold and silver) and critical and strategic minerals (such as Lithium and Cobalt). The amendment is expected to contain provisions for auctions of exploratary licences for undertaking reconnaissance and prospecting operations.

Emerging Technology and Media

Finmin, MeitY, and RBI are coordinating to combat the menace of ‘Ponzi apps’ which make outlandish financial claims and induce unwitting customers to invest (and likely lose) their hard-earned savings.
The Telecom Regulatory Authority of India (TRAI) will soon issue directions to telcos to report 5G subscribers separately, as opposed to a consolidated report of overall wireless subscribers.
I&B Minister Anurag Thakur has said that the Ministry will call a meeting with all stakeholders next week to discuss “obscene” content on OTT streaming platforms and whether the Centre needs to intervene.

International Trade and Foreign Affairs

Mr. Padmanabhan Raja Jaishankar, Managing Director of the India Infrastructure Finance Company Limited (IIFCL), has appealed to members of the Shanghai Cooperation Organisation Interbank Consortium (SCO IBC) for greater interaction and cooperation among banks of member States.
India has successfully evacuated 534 of its citizens from conflict-torn Sudan under Operation Kaveri, with support from Saudi Arabia, the United Arab Emirates and Egypt, and is looking to rescue more stranded citizens before the end of a 72-hour ceasefire between the Sudanese civilians and paramilitary forces.
United States Trade Representative (USTR) places India on priority watchlist in its 2023 Annual Special 301 Report, along with China, Russia and four others, citing “inadequate” protection and enforcement of intellectual property rights.

Healthcare

The Union Cabinet has approved the National Medical Devices Policy, which aims to increase domestic production of medical devices. The policy aims to grow the sector to US $50 billion in the next five years.
Ayurveda practitioners cannot be equated to medical doctors and therefore cannot be paid equally, held the Supreme Court, based on several services that the former are not equipped to perform, such as autopsies or trauma care. The court was sitting on appeal from a 2012 order of the Gujarat High Court equating the two disciplines.

Banking, Finance and Insurance

SEBI plans to allow permits for a new category of mutual fund schemes, allowing asset managers to levy additional charges if a fund consistently outperforms a relevant benchmark index and gives higher annualised returns.
The Unique Identification Authority of India (UIDAI) and National Payments Corporation of India (NPCI) are in process of setting up an e-KYC aggregator platform. The platform will enable RBI regulated entities, SEBI, and pension regulators to do away with the need to individually register for undertaking eKYC using Aadhar.

Retail, E-commerce and FMCG

According to a report launched by Open Network for Digital Commerce and McKinsey and Company, government-backed ONDC may increase India’s digital consumption five-fold from $60-70 billion in FY22 to $320-340 billion by 2030.
Amidst a push by the Reserve Bank of India to tighten security standards for digital payments, card payments major, Visa pauses single-click checkout for Indian e-commerce transactions.

Logistics and Infrastructure

India has climbed six places on the World Bank's Logistic Performance Index 2023, now ranking 38th in the 139 countries index, as a result of significant investments in both soft and hard infrastructure as well as technology.
External Affairs Minister, Dr S Jaishankar announces India’s plans to explore the possibility of opening a logistics hub for its companies in Panama as trade between the two countries is expected to touch almost $50 billion soon.

Labour

Less than a week after passing a bill permitting twelve hour work days, Tamil Nadu has put it on hold, after talks with trade unions. While the Government believes the measure will bring in investments and increase employment, trade unions flag concerns with whether statutory safeguards will be implemented on the ground.
The e-Shram portal now has several new features - helping the families of migrant workers access schemes, and allowing BOCW registration. The Government has also initiated a data sharing portal, from which states and union territories can access e-Shram data.

Tracking the G20

The 3rd meeting of the education working group is currently underway in Bhubaneswar, Odisha. Day 1 witnessed a session on building an agile response to the needs of labor markets and institutional capacity building in the context future of work, among others. At a build up event for the same, the National Skill Development Corporation highlighted its initiatives such as the NSDC Academy, Skill India Digital and NSDC International.

Upcoming Events

Advancing Women’s Leadership in Climate Action

May 11 | The Oberoi, New Delhi

USISPF, in partnership with USAID, is hosting the South Asia Women Regional Conference on ‘Advancing Women’s Leadership in Climate Action’ on 11th May, 2023 at The Oberoi, New Delhi. The conference seeks to develop and harness the capacity of the industry and Government (as policy makers, entrepreneurs, project developers, etc.) to adopt and implement a gender-responsive approach, improve energy access and combine solutions that cut down carbon emissions with those that strengthen the capacity of the region’s energy sector to prepare for and respond to climate change impacts. Registration Link

A Few Good Reads

The Pavagada Ultra Mega Solar Park presents a conundrum that will be increasingly common in the future - how do we balance the need to set up large renewable power projects with the impact on local communities? A beautiful piece by Meera Subramanian.
Radhicka Kapoor provides a pinch of salt to take with India’s employment figures.
Former Foreign Secretary Nirupama Rao gives an authoritative lowdown of India’s opportunity in the world.
What do subsequent budget speeches tell us about the priorities of policy-makers? Ayush Khare and Shruti Gupta explore.
Tyler Cowen fleshes out the debate between long term-ism and incremental change.

Tweets of the Week

Shashank Mattoo has an excellent geopolitical round-up:

To understand contemporary global politics, one must go back in history, as this thread argues:

Health shocks now pinch the average Indian less, as Niranjan Rajadhyaksha shows:

Key Notifications and Reports

ONDC and McKinsey have jointly released a market study titled 'Democratising digital commerce in India' to assess opportunities in the digital ecommerce ecosystem which are set to emerge due to to ONDCs introduction.
India released its first census report on water bodies.
The Coca Cola Company has released its business and sustainability report.

The Aakhya Weekly