Prohibition in Bihar: Policy Consequences

Chief Minister of Bihar, Nitish Kumar, honoured his electoral pledge by announcing implementation of Prohibition from April 2016. Nitish’s popularity amongst women voters was attributed, partially,  to his “cycle scheme” for school going girls & the prohibition pledge further strengthened his connect, with his core constituency, helping him win a landslide win in the last state elections.  Politically astute Nitish, smarting under the criticism of kowtowing to the whims of Lalu Yadav, has tried to redeem himself partially by announcing the implementation of this promise. Though his announcement was greeted enthusiastically, the economic consequences of such decisions are usually disastrous.

Back of the envelope calculations reveal that prohibition shall lead to a revenue loss of about 3650 crores for Bihar, immediately effecting social welfare spends. It will be interesting to watch how a fine administrator like Nitish would balance the move without inviting a backlash that could be counterproductive in the medium term where he fancies himself as the next PM candidate in the 2019 elections. To further that ambition, expect the Bihar govt. to demand support from the already stressed centre which is unlikely to be agreed to, effecting centre-state relations.  Such a polarisation would help Nitish though. It is reasonable to also expect a political slugfest with Nitish demanding that Modi fulfil his electoral promise of transferring 1.25lakh crore to Bihar apart from the earlier announced 0.4 lakh crore; off course the demand to grant “special status” would still persist.

Prohibition, just like the production quotas during the license quota raj, prior to 1991, is meant to fail.  History is replete with instances where many states, like AP, TN, Haryana & Mizoram attempted prohibition, failed & eventually were forced to retract their decisions.  There are some notable exceptions though: Lakshadweep, Gujarat, Nagaland, & parts of  Manipur; the NE states have been successful because of an extremely active civil society along with religious heads supporting the measure. Anna Hazare has been able to make Ralegan Siddhi, in Maharashtra,  liquor free by persuading villagers take a resolution in a temple – for greater moral sanction  - with deviants inviting public flogging. While some retailers selling liquor closed down voluntarily, those who resisted were attacked by a youth organization, “Tarun Mandal”, which was effectively the executor of the decision. Gujarat, though, technically remains a "dry state" since its inception in 1960, although bootleggers, there, have a field day.   

A loophole in the law that was meant to protect tourism allows foreigners & NRIs with permits to hold liquor;  likewise, patients can ingest the brew under supervision but these allowances are widely misused. Separate rules that apply for SEZs are taken advantage of. Since Army & the paramilitary forces do not come under the ambit of state laws, "contacts" can get you the booty. 5 litres of alcochol is allowed on checked in baggage on domestic flights which is used widely to sneak in the mix.

Prohibition, therefore, fails because revenues that should ideally accrue to the states are usurped by a new category of intermediaries. Shortage of any commodity encourages smuggling since demand creates its own “innovative” supply lines. Supernormal profits, attracts unsavoury elements who vitiate the law & order apparatus; worse still the latter along with the political bosses get co-opted. It is this clique that has most to lose if prohibition is revoked & hence acts as a pressure group to prevent the retraction of this uneconomic measure. Vigilantism & the consequent trampling of civil rights is the other dreaded consequence.

The only way to reduce alcohol consumption is to attack the demand side of the activity & not the supply side which is what prohibition attempts. If prohibition does indeed force drinkers to dunk the practice because of induced scarcity it could still be attempted. However, consumer behaviour studies show that people do not stop drinking because of the imposition of prohibition but explore innovative ways to circumvent the law. When prohibition was implemented in AP, they travelled to neighbouring Yanam, Pondicherry & a similar behaviour is being now seen in Kerala; this has the potential of transferring one state's revenue to a neighbouring one. Extending the same logic, tipplers would pay black-marketers, more, depleting family savings further, perhaps, with a further increase in domestic violence. This goes against the basic premise of implementing prohibition: More family savings & hence better life. 

The ill effects do not end there.  Liquor smuggled through tubes or in wind shield wiper tanks or other unhygienic containers has the unintended consequence of inducing long term pain. Increase in the sale of hooch, toddy et al, mixed with inedible substances, are known to accelerate liver damage. There have been many recorded instances of spurious liquor vends doling out poison leading to the death of the chief wage earner (CWE) of the family. Therefore, prohibition forces revenue loss for the state immediately & substantially higher health care costs in the long run. Farmers who produce grains or sugarcane - whose byproduct molasses is used for making liquor - are also effected by such bans. When production is banned, employment opportunities in manufacturing are adversely effected. This makes it an uneconomic public policy alternative.

It must however be agreed that that alcohol consumption has many deleterious consequences & has to be tackled, as ordained, through article 47 of the Directive Principles of State policy, of our constitution. Indians are known to binge & not consume liquor in moderation, complicating the options for public policy makers. While "sin tax" is the oft used measure, it has to be supplemented with education propaganda, reduction of liquour selling outlets, non allowance of outlets beside residential colonies, schools et al, starting counselling & deaddiction centres & banning surrogate advertising Prohibition is not the answer for it helps neither the government nor the citizens, including the drinkers' family