Why Delhi’s New Excise Policy Has Led to a Dry Liquor Run

Looks like the spirits of Delhiites will be shaken for the next one and a half months.

The capital city is now witnessing a massive crunch in the supply of liquor, thanks to the 260 private liquor shops in the city shutting down for the next 45 days or so.

Although the 600-odd government liquor shops are open and have been officially instructed to ensure enough stock in order to meet the surging demand during the next 45 days, there’s no telling if they can stand up to the challenge.

But where did this challenge emanate in the first place?

On March 22nd, the Delhi government announced a series of changes in the state’s excise policy. Not only did it lead to a reduction in the legal drinking age (from 25 to 21), it also proposed the establishment of “super premium” vends which will offer the best liquor brands and high-end walk-in experiences.

This bourgeoisie-fication of the state’s liquor business was done with multifarious intent. Let’s look into it.

The New Excise Policy 2021

Laying the premise that New Delhi is ranked as the 28th most-visited city in the world and the first in India by foreign visitors, the state government emphasised how much it depends on the excise revenues. As an effort to fortify these sources of revenue and crack down on the liquor mafia, the policy document proposed the following:

• All the existing 260 private liquor outlets will be given to private firms to own and operate via open tender.
• This transition will happen within a one-and-half-month period (October 1st to November 17th) within which only government-run liquor outlets will stay open.
• The government vends will shut down on November 16th.
• The new license holders (won through the tender process) will start sales from November 17th.

So, essentially, the policy entails a “purge and reinstitution” technique with the aim of uniform distribution of liquor outlets in the city. There shall be at least two air-conditioned vends in every municipal ward, five super-premium stores citywide and 10 stores at the Indira Gandhi International Airport.

The policy also states that every vendor shall make necessary arrangements to offer walk-in experiences to the buyers. This means no more crowding. Bid adieu to the days of jostling for bottles at a cage-like theka. The store must have closed glass doors and the licensee must ensure that no dry snacks or cooked food outlets open right outside the liquor shop which creates more overcrowding and loitering.

The prices of liquor will also be determined after taking inputs from retail stores in the NCR region (Gurgaon and Noida, in particular) from where rampant smuggling of liquor into Delhi takes place.

Behind the Rebranding

The first goal, as evident, is for the Delhi government to exit the liquor business and pave the way for closure of state-run shops and promotion of private players. Unlike now when retailers don’t have the luxury to offer discounts on liquor, the new policy seeks to endow them with the freedom to do so. This is expected to boost a competitive trade environment instead of the government mandating MRPs as was done earlier.

The second goal is to attain uniform distribution of stores throughout the city. There are 849 liquor vends in Delhi as of now. Although the Government doesn’t intend to change that number materially, it aims to reshuffle them into 32 zones to ensure a more equitable access throughout the 272 wards in the city, the NDMC area and the airport.

Third goal — restricting tax evasion. With state coffers severely depleted as a consequence of emergency corona-time spends, there is added motivation to garner revenues from the most scalable sources like the liquor business. The state is estimated to earn close to ₹10,000cr ($1.3bn) in revenue under the new excise policy.

Delhi’s excise department has taken some novel measures to check tax evasion and sale of spurious liquor. For instance, Excise Adhesive Labels fitted with high-end security features have been introduced. These are expected to plug leakages in the supply chain, limit pilferage and avoid tax evasion.

Additionally, a new licensing mechanism has been introduced for granting permits to serve liquor at banquet halls organising parties. As opposed to the temporary licenses granted earlier, these venues will now be offered annual fee-based liquor licenses.

The ultimate goal, however, is to enrich the user experience in the city. Delhiites will now be able to fill their bottles or “growlers” with freshly-brewed beer from any microbrewery in the city. The microbreweries will also be permitted to supply draught beer to bars licensed to sell it.

The five elite vends will be allowed to stock at least 100 imported liquor brands considered premium quality liquor similar to the ones present in Hyderabad and Bengaluru.

What are the Concerns?

The biggest opposition towards the new policy has emerged from the Delhi Liquor Traders’ Association. They believe the stricter new conditions (annual turnover of ₹250cr ($33.7m) and five-year experience) for issuance of the L1 liquor licenses will favour a few large players at the cost of smaller ones.

One reason behind such stringency could be to prevent the circulation of cheap and unregulated liquor brands manufactured from the neighbouring states by the local syndicates. The target to cleanse liquor trade is worthy enough to demand such tight qualifications. Not to forget that the number of players who meet the stated criteria count in the dozens in the national capital and aren’t as few.

The exit of the government from the liquor trade in a city where it used to run 60% of all vends has also raised doubts. The policy states that 40% of private liquor shops generate more revenue than state-owned shops in Delhi. Even though private takeover of liquor business in the city could increase competition and add to revenues (license fees raised from ₹8–10L ($13,487) to ₹6–6.5cr ($876,683) per vend annually), loss of employees’ benefits, possible cartelisation etc. are some of the potential downsides worth considering.

Plus, when it comes to redistribution of liquor outlets, under the new policy, a person can bid for two zones simultaneously and in this instance there is an expected chance of monopoly.

Besides, at least 3,000 people employed in the private liquor shops are estimated to be affected by the 45-day closure of the vends. In 26 out of the 272 municipal wards, there are no government liquor vends which may add to the supply shortage.

But like the Delhi High Court said while addressing the matter,

"Public will have to move out of their comfort zone. Everything will not be at the doorstep when there is transformation."

Let’s see how radically transformative the capital’s liquor business will be as a consequence of the new excise policy. For starters, one can take satisfaction in the fact that the initial bidding process of the retail vends in 20 zones raked in about ₹5,300cr ($714.8m) for the state.

That’s certain to have raised the bar.

(Originally published October 1st 2021 in transfin.in)