Rahul V Kumar
The liquor trade in Kerala has always remained politically directed with little or no choice for consumers. Political decisions have shaped the trade for several decades. Business can thrive only when entrepreneurs are free to decide what benefits them most. When politicians decide how a business should be run, the entire decision making of the entrepreneur will be based on faulty premises and greater uncertainties. Moreover, when the government decides to run business on the entrepreneur’s behalf it creates a whole new problem of mismanagement and inefficiency.
Kerala’s latest decision to introduce foreign liquor through government held BEVCO outlets should be seen in this context. The latest policy claims to provide access to imported foreign liquor through government controlled retail outlets in the state. The new decision does not seem to do anything to change the norms for the liquor industry in Kerala. The government retains the monopoly in choosing and distributing what a consumer drinks.
The decision of the state government to allow foreign liquor companies to enter Kerala’s market might at first seem to be a market friendly approach. However, the state would continue to levy its high tax structure on imported liquor. These indirect taxes only benefit the state government. Tax from liquor is already the highest source of revenue for Kerala. How the state will spend the revenue earned from taxes on imported foreign liquor is highly discretionary. In addition, it is the state bureaucracy which decides who enters the market.
The role of the bureaucracy makes the entire process opaque to the consumer. As major stakeholders in the liquor market, consumers who bear the heavy tax burden need to be provided all available information. Lack of transparency not only hinders consumers from making informed choices but also affects product innovation. In a controlled market, producers find it difficult to understand consumer behaviour.
Kerala’s decision to open its liquor market is also restrictive as major brands are not free to directly market their products. Rather all the products are sold through government controlled retail outlets. It is well known that these government outlets are the shoddiest and creepiest places to access liquor. Had the bigger companies been allowed to market their products through their own outlets or outlets of their preference- malls or big retail chains- the role of BEVCO would be dramatically curtailed. The very environment in which liquor is sold in Kerala has been crucial in developing the attitudes and behaviour of consumers. It has not only affected consumer attitudes but also shaped the way in which liquor is seen and perceived by society.
Per capita consumption of liquor in Kerala is one of the highest in the country. This is a reflection of the demand which is likely to grow until it saturates in the long run. It is impossible to curb demand by restricting availability of liquor. This has been experimented and the result was a proliferation of other intoxicants in the market. The state can do best by allowing the market to deal with the outcome of this unquenchable thirst of the average Keralite. As a step forward it is important that the monopoly of BEVCO retail outlets be phased out. Several of these outlets have been major bones of contention between society and the state.
So how do we understand the newly crafted story of importing liquor to Kerala? It appears to be a story of deceit where nothing changes. The state government would act as the benign provider and liquor will be taxed at high rates as usual. BEVCO would assume the role of a ration shop where the average person would get their share of the imported product. Hotels and bars would still exist, which people willing to pay higher taxes would continue to frequent. There is nothing to change the norm of high taxes in this industry or make the market competitive. The only victory would be for the state government which would convince consumers that their accessibility to more products has made them better off. Would that change anything? We don’t think so.
(Rahul V Kumar is a Research Consultant at CPPR
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