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Kerala’s total prohibition policy may backfire

Published in Health Monday, 15 September 2014 16:37

By Suresh R Menon
Kerala currently enjoys the unenviable honor of being the highest per capita consumer of alcohol in India, and liquor sales is one of the biggest revenue sources for the state government. And surprisingly, the Oomen Chandy government has recently announced a new liquor policy aimed at achieving complete prohibition in the next ten years. If the chief minister is to be believed, in a decade from now Kerala will transform into a dry state like Gujarat.

However, there are not many takers for this tall claim made by the state government. According to a cross-section of people that Business Digest spoke to, the Kerala government’s sudden decision announced on August 21 to bring in total prohibition within the next ten years is clearly more political than ideological. It is just vote bank politics and a ploy by the ruling party to appease its coalition partners – the Indian Union Muslim League (IUML) and Kerala Congress – and garner votes, but not at all practical to implement, they argue.
As per Kerala’s new liquor policy, licenses for the 418 bars that were closed in March 2014 will not be renewed. The state government also plans to shut down another 312 existing bars by September 12 this year or latest by the end of this fiscal. Thereafter, only 16 five-star ones would be permitted to serve liquor. However, the 383 state-owned retail stores of Kerala Beverages Corporation (Bevco) will continue to sell liquor and their number will also be whittled down (at the rate of 10% each year) to zero over a 10-year period. Moreover, this October 2 onwards, all Sundays in Kerala will be dry days.
Industry observers and market analysts see pure politics at play and say such knee-jerk reactions of trying to bring in total prohibition over the next 10 years will not work. Instead crime and corruption will flourish in the state as bootlegging and illicit liquor would proliferate unless social backup measures to wean away people from drinking is undertaken by the government and social organizations.
A state that is heavily reliant on the taxes from liquor, hospitality and tourism industry for its survival can never afford to successfully implement such a bizarre decision to bring in complete prohibition as financially the government will be in doldrums. Currently, Kerala earns more than Rs 8,000 crore per year from liquor sales. Although the sale of booze through retail outlets will continue – with a gradual trimming of 10% annually – closure of bars will definitely inflict a significant loss of revenue on the state government every year.
Then where will the Kerala government look to for alternative sources of funding to replace one of its main revenue earners that will cease to exist? Secondly, the alcohol sector provides direct and indirect employment to over 50,000 people in the state. So imposing total prohibition is going to be an enormously tough call both in terms of loss of revenue and rehabilitation of the workers employed by the liquor industry.
Furthermore, the liquor sector is dominated by politically powerful communities, which will be out of business if this decision is not reversed. So after the next election, the political party or coalition that comes to power will most likely reverse this decision and reopen all the bars and retail shops as liquor is one of the main sources of revenue for the government as well as provider of jobs for the local residents.
Moreover, the side effects emanating when an overindulgent drinker is deprived of his daily quota of drinks will be even more challenging. Will the custom of social drinking vanish overnight? That is unlikely to happen and people will find innovative ways to bring in liquor from other states, thereby pushing up the prices and creating several other issues including law and order. It will also result in the court system getting clogged with charges against people caught intoxicated or in possession of liquor.
Meanwhile, it is worth noting that states like Andhra Pradesh, Haryana and Mizoram, among others, have already experimented with total prohibition in the past and were later compelled to withdraw it as the ban on alcohol sales and consumption cost the state treasury crores of rupees in lost excise revenue and also led to loss of thousands of jobs in brewing, distilling and retailing of alcoholic drinks.
Furthermore, the experiences of other states such as Gujarat, Lakshadweep, Manipur and Nagaland, which have banned liquor, also point to the potential failures of imposed prohibition because when such sudden and unexpected changes are brought in, the lack of supplies will be taken care of by smuggled liquor, local brews and spurious drinks. In that case, the biggest challenge will be law enforcement because world over, prohibition has always led to a rise of criminal syndicate which profits from it.
[Suresh R Menon is the Consulting Editor of Business Digest. He has worked in senior editorial positions with several publications and corporates such as Ernst & Young, Business Standard, The Times of India, Asian Age, Dalal Street Journal and The Gulf Today. He can be contacted at This email address is being protected from spambots. You need JavaScript enabled to view it. ]

Last modified on Monday, 29 September 2014 18:52

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