Hit on revenues from alcohol to dent Delhi govt's revenue balance

The Delhi government had projected Rs 9,454 crore in revenues from alcohol -- Rs 700 crore from country spirits and Rs 8,754 crore from foreign liquor and spirits -- for 2022-23. This represented a 57.6 per cent rise from around Rs 6,000 crore it had been earning from alcohol a year in recent times.
 
The projected revenue from alcohol estimated at the time of presenting the Budget constituted around 20 per cent of the state's expected own tax revenue and 15 per cent of its total receipts for the current financial year.
 
This revenue is now in the doldrums after the abandonment of the excise policy for alcohol by the state government this month.

 

It is still not clear how bad a dent the move to revert to old liquor policy will have on the government finances in eight months of FY23.
 
According to reports, in the first quarter of 2022-23, Rs 1,594.84 crore was collected from the sale of liquor. Of this, Rs 980 crore is a refundable deposit.
 
The Delhi government had projected a revenue surplus of Rs 7,601 crore for the year, which may not be possible now, other things remaining the same.
 

Or it may have to cut its freebies, which is politically risky given the policy stance of the Aam Aadmi Party (AAP) government.
 
In its previous stint, the Delhi government had a revenue surplus in all of its five years.
 
However, it has been off mark in estimating its revenue balance in recent times. For instance, it projected a revenue surplus of Rs 7,239 crore for 2020-21 but revised it to Rs 3,770 crore of revenue deficit. However, in the end, it turned out to be Rs 1,450 crore of revenue surplus. Similarly, it estimated a revenue surplus of Rs 1,271 crore for 2021-22 at the time of the Budget presentation but revised it to Rs 3,039 crore of revenue deficit.

 
This time, revenue surplus was estimated quite high at over Rs 7,000 crore for FY23. Though around the same amount was budgeted for 2020-21, FY23 is not an abnormal year like 2020-21 and to some extent 2021-22.
 
But now, around Rs 9,500 crore from spirits and liquors is in jeopardy. How much would come from this is anybody's guess.
 
If total revenue falls to around Rs 2,500 crore from alcohol, Delhi may witness a revenue deficit, ceteris paribus. However, this does not seem to be the case as Delhi has been getting around Rs 6,000 crore from excise and VAT in recent years.

 
Also, in a dynamic world ceteris paribus hardly means anything. In this context, GST revenue may come to a moderate rescue of the Delhi government.
 
Delhi projected its Goods and Services Tax (GST) revenues at just Rs 26,000 crore in 2022-23. Domestic transactions delivered Rs 18,624 crore in Delhi in the first four months of the year. But this revenue included Central GST as well. Assuming CGST and SGST to be the same, it would mean Rs 9,312 for the Delhi government. On a pro-rata basis, this means Rs 27,936 crore for FY23. GST collections are generally more in festive months and in March, so Delhi would get slightly higher than this amount. Besides, integrated GST from imports is not factored into this calculation, some of which would flow to the state government too. One may roughly assume that the state may get at least Rs 29,000 crore from GST.

 
The state had also budgeted Rs 10,000 crore from the compensation cess of which Rs 8,012 crore has already been released for April and May. So, even if compensation is not extended beyond June, it would not harm the state exchequer much.
 
As such, the state would get around Rs 3,000 crore extra from GST over what it had projected for FY23. Revenues from alcohol are likely to fall by more than this amount from the budget of around Rs 9,500 crore. As such, the Delhi government may see some effect on its revenue surplus position but it may still not have a deficit, provided it keeps its revenue expenditure at the budgeted level of Rs 53,687 crore. Delhi had projected revenue receipts at Rs 61,289 crore for FY23.

 
The new excise policy for alcohol was introduced in Delhi in November last year. It made sweeping changes to the nature and functioning of the liquor trade in the city. The government exited the customer-end of the trade entirely, shutting all government-run liquor vends, and the sale of liquor was handed over exclusively to private players. Before the policy was implemented, there were 849 liquor shops in the city.
 
From August 1, liquor will be sold only through government outlets in the Capital.
 
“We have decided to end the new policy and given directions for government shops to open… I have ordered the Chief Secretary to ensure that there should be no corruption in government shops and no illegal alcohol sold in Delhi… I have given directions that there should be no chaos during the transition period,” finance minister Manish Sisodia said at a press conference.

 
He said the number of liquor shops will not exceed 850 – as under the previous policy.