In today’s Finshots, we dive into Andhra Pradesh’s new liquor policy and why it might not be the game-changer the state hopes for.
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The Story
Liquor is a tricky business in India. There’s no one-size-fits-all approach to regulating it. Each state makes its own rules, which means taxes, distribution, and pricing can vary wildly across the country.
For instance, Karnataka slaps about 80% tax on the MRP of alcohol, while in Goa it’s around 50%. This creates a bizarre scenario where the same bottle of whiskey could cost ₹130 in Goa but soar to ₹513 in Karnataka.1 And unsurprisingly, this leads to widespread liquor smuggling and a thriving black market.
Yet, liquor is a huge source of revenue for states. An analysis from Moneycontrol shows liquor accounting for about 13% of total state tax revenues in the financial year 2024.2
And that brings us to Andhra Pradesh, which is banking on a brand-new liquor policy that's aimed at selling low priced liquor to reduce illegal sales and collect over ₹5,500 crores in state revenues.
It's no small sum. But is this policy as beneficial and straightforward as it promises?
Well, to answer that, we need to rewind a bit.
See, a few years back, Andhra Pradesh embarked on a phased liquor prohibition strategy, even if it meant sacrificing ₹20,000 crores in annual revenues. The government took over the liquor retail liquor business and cut down the number of shops from 4,380 to 3,500.3 And it even hiked the prices of liquor. The goal was simple - curb alcohol consumption, bring in fair trade, and it sounded great on paper.
But what actually happened was that smuggling and illegal liquor sales shot through the roof. People weren’t drinking less but instead turning to cheaper, lesser taxed alcohol from neighboring states. The black market thrived, and the state’s control over liquor sales backfired.
So, fast forward to today, and the state has decided to shake things up with its new policy, which is set to roll out from October 16th.
The key changes?
- The state is opening up the liquor market by allowing private retailers to operate 3,736 shops. To get a license, applicants must pay a non-refundable fee of ₹2 lakh per shop. And there’s no limit on how many licenses one person can hold.
- It’s introducing low-cost liquor priced as low as ₹99, aimed at providing affordable alcohol and curbing illegal sales.
- Retailers will earn a 20% margin on the issue price of liquor, including beer and wine. But they’ll also have to pay a hefty annual retail excise tax (RET), which ranges from ₹50 lakh for small towns (with populations of around 10,000) to ₹85 lakh in larger cities (population 5 lakh+). And this tax will increase by 10% in the second year.
In simple words, the state is opening the door for private retailers to run liquor shops, hoping this will curb illegal sales, and boost competition, tourism, as well as tax revenues.
But there’s one part of the policy raising eyebrows—the ₹99 liquor. The idea is to make cheap liquor widely available to undercut the black market. However, imagine trying to run a business where you’re expected to sell alcohol at rock-bottom prices after paying a hefty excise tax. The profits can be hard to add up, right? So, when the state opened up bidding for these liquor licenses, the response was obviously lukewarm. Even after a few days, each shop had only about three tenders, forcing the state to extend the deadline.4
And while the policy eventually got about 85,000 applications in total, nearly 900 shops didn’t receive a single bid. For instance, some districts like Tirupati, Nellore, and Visakhapatnam reported zero applications for a large number of shops, while districts like Vizianagaram saw over 800 applications flooding in.5
Plus, the policy is also facing heat for potential monopolies. In some districts, monopolies are said to be discouraging businesses from applying for licenses. And some claim it’s part of a larger effort to control the market, allowing a few players to dominate.5
And here’s another kicker we need to consider – even if the shops are open, what happens after when they can’t turn a good profit every year? If they're squeezed too hard, they might turn to substandard quality or even shut shop, leaving the policy's big revenue projections and the very purpose of social wellbeing in shambles.
So what’s the takeaway here?
At first glance, Andhra Pradesh’s new liquor policy looks like a win-win. More revenue for the state, reduced illegal sales, and cheaper liquor for consumers. But dig a little deeper, and cracks start to appear.
The government has already managed to net a whopping sum of about ₹1,700 crore from those ₹2 lakh non-refundable deposits per shop for license applications.
Will it also prove to be as profitable for the liquor shops in the long haul is something that remains to be seen.
What’s certain though is that the policy’s success will hinge on execution.
The government has promised transparency and strict quality control measures. But as we’ve seen in other states, like Delhi, promises don’t always pan out well. When Delhi tried to privatize its liquor market, many license holders surrendered their permits because the business was simply unviable, and the policy favored large retailers as opposed to smaller shops.
Could a similar fate await Andhra Pradesh, or has the state cracked the code for good on liquor regulation?
Well, that's something we want you to tell us.
Until then…
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Story Sources: TOI [1], Moneycontrol [2], Business Standard [3], The Capital [4], RTV [5]
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