The Indian Liquor Industry Prohibition Story



Themes: Ethics in Business
Period : 1995-1999
Organization : -
Pub Date : 2002
Countries : India
Industry : Food, Beverages & Tobacco

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Case Code : BECG011
Case Length : 08 Pages
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The Indian Liquor Industry Prohibition Story | Case Study

"States shall endeavor to bring about prohibition of consumption of intoxicating drinks except for medicinal purposes."

- Article 47, Constitution of India.

"The industry is not threatened by prohibition as we are aware that it does not stay for long."

- A liquor industry source in 1998.

The Indian Liquor Industry Prohibition Story: The Politics of Liquor

In 1996, in the north Indian state of Haryana, the Haryana Vikas Party (HVP) promised to make it illegal to buy, sell, consume or produce alcohol in the state if it were elected to the state assembly.1 The opposing parties criticized the HVP for trying to gain political mileage out of a sensitive issue like liquor prohibition.

Despite the criticism, HVP won the elections and its leader Bansi Lal carried out the party's promise within minutes of becoming the Chief Minister (CM). Over the next year, the ban cost the state treasury Rs 12 billion in excise revenue and led to a loss of 20,000 jobs in brewing, distilling and retailing of alcoholic drinks. In addition, 40,000 truckers, farmers and bottle producers experienced a substantial decrease in their earnings.

The state police filed 98,699 cases involving about 100,000 people caught intoxicated or in possession of liquor. Over 13 lakh bottles were seized and 7,000 vehicles were impounded. The state also saw an alarming increase in deaths, resulting from the consumption of spurious liquor by poor people.

To offset the loss of revenue, the government raised taxes and fees for various state-provided services - power tariff were increased by 10-50%, bus fares by 25%, and the petrol sales tax by 3%. New taxes were levied on businesses and self-employed people. Almost overnight, illicit brewing and liquor smuggling became one of the biggest industries in the state. Haryana's tourism industry suffered badly as tourists preferred to visit neighboring states where there was no prohibition. Profits of most hotels and restaurants, including the state-owned Haryana Tourism Resorts reached the nadir.

The HVP also paid heavily for imposing prohibition in Haryana. Not only did it lose 8 of the 10 Lok Sabha seats it held in the 1998 parliamentary elections, its leader's son spoke openly against prohibition. As a result, in a 'not-so-surprising' move, the Haryana government decided to lift prohibition in April 1998.

The Rs 60 billion Indian liquor industry was delighted by this move. At the same time, prohibition supporters all over the country voiced their objection to this decision, fuelling the age-old dispute over the efficacy of prohibition.

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1] Liquor consumption in Haryana had increased from 13 lakh liters p.a. in 1966 to 1,600 lakh liters p.a. in 1992.