In today’s Finshots, we examine whether the Kerala state government lotteries are a boon or a bane in disguise.

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The Story

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Would you shell out a couple of bucks for a lottery ticket that could turn you into a Crorepati overnight?

It’s tempting, huh? The idea of hitting a jackpot worth lakhs or crores can be oh-so-tempting. And if you said yes, you’re not alone. Every day, millions take this gamble in India.

And that brings us to Kerala.

Millions in the state spend a staggering ₹43 crore daily on lottery tickets. Yes! In December 2023 alone, the Kerala State Lotteries Directorate printed over ₹1.8 crore tickets each day.

But it’s not just about luck.

You see, Kerala’s lottery system, established in 1967, is one well-regulated system in the country. How so?

It's operated by the state’s Finance Ministry, and it’s a robust mechanism that runs like clockwork. Weekly lotteries, like the one called Pournami, monthly draws and mega bumper lotteries during festivals such as Onam and Christmas, with prizes soaring up to ₹25 crore, keep the buzz alive throughout the year. Then, to ensure credibility, draws are conducted under strict supervision, and tickets come with advanced security features like QR codes, colour codes and unique barcodes to prevent fraud.

So, after seeing the success, Kerala recently decided to extend its lottery operations beyond state borders. The plan? To appoint authorised distribution agents in selected states, potentially creating another revenue goldmine. And why not... After all, lotteries contribute immensely to Kerala’s coffers. In FY24, the state earnings were about a jaw-dropping ₹12,500 crore from lottery sales! YUP. That's up and growing from ₹11,800 crore in FY23 and ₹7,000 crore in FY22. And impressively, lotteries account for 70-80% of the state’s non-tax revenue.

Add to this the GST revenue and income from unclaimed prizes, and the financial impact becomes even more significant. After accounting for prize payouts, agent commissions, and other expenses, the government retains about ₹3,500 crore annually.

This money also helps the government fund welfare programs. A portion of the revenue funds the Karunya Benevolent Fund, which provides financial assistance for medical treatments for serious illnesses. The lottery network itself, spanning around 55,000 agents and 1.5 lakh retailers, is a source of livelihood for thousands.

So all is very well with this plan, yeah?

We don't think so, as the flipside is hard to ignore.

See, lotteries often attract lower-income groups, luring them with the dream of a better life. Many end up spending a significant portion of their earnings on tickets, sometimes at the cost of basic expenses or savings. A single ticket, priced at ₹40, includes ₹9 as GST, placing it in one of the highest tax slabs at 28%.

And while the government benefits from this revenue, the heavy reliance on lotteries—alongside alcohol and petroleum—as key sources of income for the state raises concerns. Together, alcohol and lotteries account for about a quarter of the state’s revenue!

This overdependence is risky. If public interest in lotteries wanes, the state’s finances could take a severe hit.

Compounding this issue is Kerala’s lack of industrial development...

Unlike other states, Kerala hasn’t seen a surge in the number of big corporations setting up shop. Instead, it relies heavily on foreign remittances from its diaspora.

Add to this a debt-to-GSDP (gross state domestic product) ratio of 35% which is well above the national average of 25%, and the challenges become glaring. Servicing debt, funding welfare schemes, and managing pensions put immense pressure on the state’s finances.

But there’s more to unpack here, in simple economic terms. And it’s not all glitter and gold.

See, while the system brings in hefty revenues, the social costs could be profound. There’s evidence of gambling addiction that ties to lotteries. One might be lured by the dream of a jackpot but soon spiral into financial ruin after borrowing excessively to keep placing bets. This can deepen the already precarious lives of low-income groups.

And one could argue that the constant outflow of small savings into lottery tickets can stifle productive investments. Economists see this redirection of money as potentially hurting microeconomic growth because disposable income that could’ve been spent on local businesses or bank savings gets funnelled into a gamble.

So, is Kerala’s lottery system a masterstroke?

On paper, it’s a brilliant strategy. A cash cow that funds welfare programs and props up state finances.

But beneath the glitter lies a fragile foundation. Pinning the hopes of an entire state’s revenue on a gamble is a high-stakes bet in itself.

What happens when the allure fades? Or when public sentiment shifts?

So yeah, the Kerala lottery system may be a masterstroke for now, but without bold diversification and a cautious eye on the future, it risks becoming a tale of over-dependence. And success today could very well be the Achilles’ heel of tomorrow.

What’s your take? Let us know!

Until then…

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