Clamour for liquor sales in India is a sign of states' financial stress after coronavirus lockdown

BANGALORE - As some parts of India ease out of a six-week nationwide lockdown this week, the loudest cheers came from liquor shops.

Liquor stores opened at 9am, but in Bangalore, people started to line up at 5am. Long queues snaked around for blocks. Some shops sold out in half a day. In rural Telangana, people danced to film tunes when they got a couple of bottles of brandy after hours of waiting.

In the capital, New Delhi, many areas around liquor shops saw traffic jams.

In Mumbai, the city with the largest concentration of Covid-19 positive cases in India, people crowded shop fronts and broke social distancing norms. Mumbai authorities have now ordered all liquor shops to close.

Despite concerns about crowding and infections, most Indian leaders have been steadfast in wanting to sell booze. The nationwide clamour to open liquor shops has more to do with the financial crisis in the states than alcohol addiction.

Other than dry ones like Gujarat and Bihar, most Indian states typically make about 10 to 25 per cent of their total revenues from excise tax levied on the sale of beer, wine and spirits.

The total revenue from liquor is around 2.48 trillion rupees (S$46.3 billion), for all states combined. Last year, the state government in Chhattisgarh received a quarter of its total tax revenue from liquor sales. Kerala and Karnataka received 20 per cent of their total revenue from alcohol.

States have been hit hard since March 24, as all economic activity was suspended under the lockdown. They have since had to deal with lower revenues on the one hand, and spend more on Covid treatment, containment and social protection on the other.

"The reality of India's fiscal structure is that the central government has the lion's share of the tax collecting capacity, and the states bear the lion's share of the spending. This has become exaggerated under the Covid-19 pandemic, because the response and expense is localised in states and districts," said Ms Yamini Aiyar, president of the Delhi-based Centre for Policy Research.

Indian states usually receive a 42 per cent share in national sales taxes. But tax collections by the central government have fallen due to the lockdown. There have also been delays in transferring the states' dues.

For instance, in April, the Indian government paid 34 billion rupees of the Goods and Services Tax to the states; these were dues from October and November. Dues from the following months are yet unpaid.

States are thus falling back on alcohol receipts, one of their few direct sources of tax. As liquor sales resumed this week, many states also raised excise duties to both cope with the economic losses as well as deter large crowds.

Delhi imposed a 70 per cent "special corona fee" on the retail price. Andhra Pradesh also increased alcohol taxes from 50 to 75 per cent, and Rajasthan increased it by 10 percentage points.

"This is just a sign of the states' desperation to raise income at this time," said Mr Joe Athialy, the executive director of the Centre for Financial Accountability.

Ms Aiyar says the central government should do more to help states.

"The central government could convert funds parked for special health and development schemes into untied grants, and allow states to use them according to their needs. Also, rethink the current 60:40 fund sharing formula, and move to 100 per cent central funding," said Ms Aiyar.

Even as states struggle, one of the central government's fastest growing Covid funds is out of reach.

The Prime Minister's Citizen Assistance and Relief in Emergency Situations Fund, or the PM-CARES Fund, set up in March, has received massive Covid-19 related donations in the past month.

Bollywood actors like Mr Akshay Kumar and Mr Aamir Khan have donated millions, while companies like Tata Trusts gave 15 billion rupees, PayTM gave 5 billion, the Life Insurance Corporation gave about a billion, and the railways gave 1.5 billion.

Parliamentarians have been told to contribute their discretionary funds earmarked for their constituency in the next two years to it as well. Opposition MPs have complained that this undermined their role as parliamentarians, and would affect other development work.

Reports indicated that PM CARES, which was launched on March 28, received 65 billion rupees in its first week . The Indian government has not yet revealed the total donations collected, or the intended purpose.

"The PM CARES fund is shrouded in secrecy. We don't know how much is collected, or what the money will be used for. It is a shame that despite collecting huge amounts of money, none of it is being given to states, or used for the most urgent needs," said Mr Athialy.