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Prohibition doesn’t work. Tax Alcohol Instead

This is the second piece in a four-part series on Victimless Crimes.

India has a long and tangled history of substance use. The Vedas are full of lists of interesting consumable substances. Liquor is only one of them, but is probably the one most commonly consumed globally.

Making liquor is a low-tech process. Alcohol can be ‘cooked’ up with almost nothing in the way of equipment, from any of multiple food groups. Fermentation happens in nature, which is why elephants, bears, monkeys, etc all enjoy periodic bouts of drunkenness. Every low-tech tribal society brews its own beer, and many make their own wines as well. Setting up a distillery hardly requires much more in the way of chemical knowledge or equipment than brewing.

The concept of the ‘sin tax’ started with liquor. Catherine the Great’s minister Grigory Potemkin figured out that there was no way to stop Russians drinking. So he sensibly imposed a tax on vodka. That principle has since been extended to tobacco, marijuana, sex-work, etc.

Most of India, thankfully, follows the Potemkin model. India has a liquor industry that’s worth about Rs 1.6 trillion – that’s a little over one per cent of GDP. There are huge state excise imposts on liquor. Roughly 20% of state revenues, in some states quite a bit more, come from liquor. Plus, of course, the Centre takes its cut in the form of income tax on profits.

However, there is also an idiocy called Prohibition. Gandhiji considered drinking immoral, and he believed that it was often the trigger for a host of social evils and crimes such as domestic violence. There’s truth to this in that drinking is often associated with violence and irrational behaviour.

But global experience tells us that prohibition doesn’t work. People continue to drink, often killing themselves by drinking liquor that’s been distilled in dubious ways. The law-and-order machinery is corrupted by the moonshiners. The state loses revenues, and it spends money trying to plug smuggling, illicit brewing, and distillation.

America tried a ‘great experiment’ by imposing Prohibition from 1920-1933. That created legends like Al Capone. FD Roosevelt was bright enough and rational enough to repeal Prohibition and by then, even the madly moral had seen enough to recognise it didn’t work.

India refuses to learn from the historical record. Indian states have often flirted with prohibition of liquor. There’s an on/off history: Gujarat (& earlier Bombay state) have had prohibition since inception. Haryana, Andhra Pradesh and Tamil Nadu have had prohibition at various times. Bihar has it now. Mizoram and Nagaland have prohibition driven by the church.

The on/off history tells us a few things. First, it’s easy and tempting for a demagogue to promise prohibition and win electoral support, especially from women who have suffered abuse at the hands of drunken partners.

Second, a few years down the line, the state needs to find alternative revenue. It starts to raise bus fares, electricity, water rates, and so on. This hurts the naturally abstemious who resent being forced to pay more – they wouldn’t drink anyway. People die from consuming liquor which has a lot of methyl alcohol or other substances, in it.

Quite often, five years later, prohibition is repealed. That’s happened in Haryana, AP, TN, etc. Sometimes it’s not repealed as in Mizoram and Nagaland, where the church(es) are reckoned to be strongly pro-ban.

We should therefore have data of the sort that social scientists rarely obtain, from a series of experiments where only one major variable has changed. The same state has allowed/disallowed the sale of alcohol. This data should tell us if prohibition is worth it, apart from giving us a way to measure elasticity of alcohol demand.

Does prohibition lead to a drop in crimes, especially crimes of domestic violence since that is the reason why people vote for politicians promising to impose prohibition?

Does it lead to more crime in other areas, including, importantly, the corruption of public servants?

Does it lead to more expensive public services?

To the best of my knowledge, nobody has actually done rigorous studies on the first two questions. The third is a no-brainer ‘yes.’ In this respect, prohibition punishes the abstemious, who pay more for the possible pleasure of depriving their bibulous compatriots of booze.

The second question actually has answers. Prohibition does bring a lot of ancillary crime in its wake. States which don’t have prohibition suffer less in the way of spurious liquor deaths and they have less corrupt public administration and less in the way of organised criminal gangs.

This is a digression, but India’s lack of data on domestic violence makes it very hard to answer the first question. There is endemic domestic violence across most of India, and there is endemic under-reporting of it. Does it have an alcohol connection? Quite possibly, going by global experience. Does prohibition lead to a reduction? We don’t know.

We do know that politicians have dropped the prohibition platform and done well enough, going by the experiences in TN, AP and Haryana. It would be sensible if India reverted everywhere to a pure sin-tax regime: Drink and pay taxes. Some of that extra revenue could be diverted into creating a more enabling environment for reporting domestic violence, and for creating systems for mitigation.

Sadly, several states are contemplating imposing prohibitions instead. We never learn.

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About the author

Devangshu Datta

Devangshu Datta is a columnist. His Twitter bio says "Carnivorous, right-winger. Interests = markets, science, history, chess, bridge, sex, religion and anything with high troll-quotient. " That pretty much covers it.