What went wrong with Delhi's new excise policy?

Ushered in on November 16, 2021, Delhi’s new liquor policy had promised a sea-change -- in not just the way we purchased liquor, but also in the way it was being sold. It drew curtains on the government-owned liquor vends, as the entire business went to private players.

For consumers, it meant a pleasant change. Days of braving rough Delhi weather in long queues were over. Grilled shops gave way to swanky air-conditioned stores, where you could walk in, browse and select the brand of your choice. And some of the vends, called super-premium, even offered you to taste the liquor before paying for it.

And for the Aam Aadmi Party government -- which rode to power on the anti-corruption theme -- the excise policy was a tool to stamp out liquor mafia, black marketing and increase revenue.

It had envisaged 849 spacious and air-conditioned liquor vends equitably distributed across 32 zones in the city. Each zone was meant to have 27 liquor shops, all of which would belong to one retail licensee.

In the old excise policy regime, four government corporations ran 475 liquor stores out of a total 864 in Delhi. The rest were run by 389 private individuals.

So what went wrong?

On the face of it, Delhi’s excise policy appeared very promising. The government earned about Rs 8,917 crore through bidding against a reserve price of Rs 7,041 crore. But it was withdrawn within eight months of being rolled out amid allegations of corruption and favouritism in license granting.

The rollout was not smooth as thought. Only a handful of shops were able to operate on the first day. Later, around 644 liquor vends could open before retailers started surrendering licences as business became unviable.

By July 31, when retail licenses expired after the government decided to revert to the old excise regime, 468 outlets were functioning. 

As the Delhi government allowed stores to sell below MRP to promote healthy competition, deep discounting by bigger retailers made the business challenging for others. By June, 90% of the liquor in the market was reportedly selling at nearly 50% discount. Only those licensees who also had manufacturing and wholesale operations were able to sustain the business.

Last month, the Delhi Liquor Traders Association filed a case in the Delhi High Court, terming the new excise policy unconstitutional since it sought a lump sum payment of duty instead of per bottle. As allegations began surfacing about undue influence of some “powerful” groups in cornering the liquor licences, the Economic Offences Wing of the Delhi Police launched a probe.

Newly-appointed Lieutenant Governor VK Saxena also ordered a CBI inquiry and suspended 11 officers of the Delhi’s Excise department, including the then excise commissioner Arava Gopi Krishna and Deputy Commissioner Anand Tiwari.

Amid all this, on July 30, Delhi’s excise minister Manish Sisodia announced the government’s decision to withdraw the new policy and revert to old excise regime and running liquor vends through its agencies for next six months from September 1. Licenses issued for retail and wholesale liquor sales in Delhi were extended till August 31 to prevent shortage during the transition period.

Currently, only 342 stores are functioning as vendors from 15 zones gave up their licences.

Sisodia, meanwhile, has blamed former lieutenant governor Anil Baijal. He alleged that Baijal was against opening liquor vends in unauthorised areas, which led to a loss of thousands of crores of rupees to the Delhi government and “windfall gains” for a few private players.

The Delhi government also spoke about 'blockage' of revenues because of orders passed by courts and acknowledged that revenue in the first quarter of FY23 was 37.51% less than the budget estimates of Rs 2,375 crore. Of this, 980 crore rupees is a refundable security deposit. Private players who ran liquor stores in the old regime have shown readiness to open stores quickly if given licences again. 

Siddharth Banerji, Managing Director, Kyndal Group says last year, we lost the season in Delhi due to transition. Excise policies should not focus solely on maximising revenue. Liquor should be a central subject, states’ approach is flippant. It should be brought under GST for uniform regulations across India.

The larger issue of policy flip-flops is a common feature throughout the country, hobbling India’s Rs 3.9 trillion alcoholic beverages market that contributes to around 1.5 million jobs.

A 2021 report by think-tank ICRIER said the unpredictable nature of state excise policies with frequent and ad-hoc changes creates uncertainty and adversely affects production cycles of manufacturers operating across multiple states while also preventing them from planning their investments.  

As the Delhi example shows, sporadic regulations have often led to decrease in or significant loss of potential revenue for state governments. Therefore, ensuring a predictable tax regime is the need of the hour for an industry that is among the top three sources of revenue earning across most states.