Alcohol Prohibition, its Economic Impact and Constitutionality: Special Reference to Bihar and Gujarat

-Siddharth Sharma

Introduction

The months of November and December 2022 saw huge protests in parts of Northern Bihar, especially in the Saran Division. These protests were a result of the unfortunate death of almost 30-35 people due to the consumption of denatured liquor/alcohol. The protesters demanded compensation for the same. However, this incident also triggered a debate around Bihar’s prohibition law on alcohol, its constitutionality and practicality. The blog discusses aspects of the constitutionality of such prohibition laws. It aims at analyzing the economic aspect and impact resulting from enactment of such such laws which prohibit the sale, manufacture, and consumption of certain items, like Alcohol.

The Economic Impact of Prohibiting Alcohol

The state of Bihar prohibited liquor in April 2016. The action by the government was highly appreciated by the women of the state. By prohibiting alcohol, the Bihar government had to trade off huge revenue collection which was done by the excise department, a major chunk of which was alcohol. The growth in the excise revenue of Bihar was pegged at 22.7% in the year 2012-13 which grew to almost 33% in the Year 2013-14. These numbers remain much higher when compared to the neighboring states of Uttar Pradesh, West Bengal, and Jharkhand. The growth of excise revenue in these states, cumulatively, remained at 21.2% in the period 2012-15. The comparative data on the growth in excise revenue in these states speaks volumes about the importance of revenue from liquor in the state of Bihar. The state lost close to 4000 crores of revenue due to the enforcement of complete prohibition, the same which was flagged by the Comptroller and Auditor General (CAG) in its report in the year 2016-17.

Historically, Bihar has been one of those states which have been labeled as BIMARU, an acronym infamously used for the economically backward states of the post-liberalization era. The Economic Reforms of 1991 opened a spree of investment in states like Tamil Nadu, Maharashtra, and Gujarat. Even states like Uttar Pradesh and Haryana were able to mobilize investments in the IT sector in clusters like NOIDA and Gurgaon. Few states however remained untouched by this phase of economic growth and these were the infamous BIMARU states. The state despite having huge natural resources could not match the level of growth in other states and the partition of mineral-rich Jharkhand proved to be fatal for the manufacturing sector of the state and consequently the economy. In this period, the revenue earned from alcohol in the form of excise formed a major portion of the revenue earned by the state government. This revenue continued to increase phenomenally after a new excise policy was put in place in the year 2005, ironically by the same Chief Minister who is now spearheading the campaign against the consumption of liquor and its sale in the State.

The 2016 complete prohibition on alcohol has impacted the state revenue collection and its exchequer to a great extent. The efficiency of the prohibition is yet another question where the government seems to get uncomfortable. The deaths due to the consumption of denatured liquor are increasing across the state as the vulnerability of those who are habituated to alcohol is being exploited by organized bootleggers both in and outside the state. The excise revenue of the neighboring states has grown to a total of 34000 crores during this period of prohibition. 

The laws prohibiting the sale, manufacturing, and consumption of liquor, apart from having an impact on the revenue basket also jeopardize employment in this sector. The manufacturing of liquor is a labor-intensive work, and the banning of liquor in a state like Bihar, which is rich in human resources also wastes the potential growth it could have induced in the manufacturing sector of the state. The sale of these items requires infrastructure which in turn produce employment opportunity in large numbers.

Prohibition of alcohol is not new in Indian States. The state of Gujarat has been enforcing the prohibition of alcohol since it attained statehood following its separation from Maharashtra. The primary reason for this was the Gandhian Ethos in the state. The Mahatma throughout his life was against alcohol consumption, the prohibition of alcohol in his home state was considered to be a befitting homage to Gandhi. Despite a ban on alcohol in the state, its economic impact on the state is not felt as in the case of Bihar. This is because, Gujarat through the years has successfully diversified its tax/ revenue basket, and consequently the tradeoff of Excise revenue does not create a larger economic imbalance, which is the case in states like Bihar. In the state of Gujarat, the manufacturing, as well as service sector, has been growing constantly throughout the past two decades. The difference in the approach to enforcing the prohibition policy is also distinct in the two states. In the state of Gujarat, the law has been amended numerous times. The state has done so in various instances which are either directly or indirectly related to investment in the state. The very first instance of such a modification was made in the year 2006 when Gujarat’s flagship investment meet was organized namely, Vibrant Gujarat. A notification by the government of the state notified issuance of a ‘group permit’ to educational and commercial entities for conferences and seminars. Further notified hoteliers were issued licenses of sale to people having tourist or visitor permits. In the year 2014, with the Pravasi Bhartiya Diwas being organized in the state, the government authorized certain liquor shops to issue permits whether the person has checked into a hotel or not. Moving a step forward, the government also simplified the issuance of online permits. The picture is completely different from that of Bihar, where no such relaxation is given. The prohibition law of Bihar is such that in the year 2017 the Central Government had to flag the negative impact of the law on the diagnosis of Tuberculosis in the state.

Aspects of Constitutionality 

It is necessary that these prohibition laws also stand the test of constitutional validity. The government in this age of democracy shall not have a regulation on the consumption of the citizens at large. Recently, the constitutionality of such prohibition laws was discussed in the case of Peter Jagdish Nazareth vs. the State of Gujarat, wherein the petitioner sought the court to assess the Prohibition Law in the state with regards to the Right to Privacy and KS Puttaswamy judgment. The High Court of Gujarat opined in agreement with the petitioners and agreed to hear the case.

In the case of KS Puttaswamy v. Union Of India, the right to privacy was recognized to be  a fundamental right under Art 21 of the Indian Constitution. Consumption of any article is one’s choice and the government, thus, in a democracy, should not dictate, whether to consume a particular item or not . This is a decision that the citizenry has the right to exercise. Individual preferences should be counted within the realm of privacy under Art 21 and thus such laws prohibiting the consumption of a few articles shall be evaluated on that parameter. In the landmark case of Maneka Gandhi v. Union of India, the court enhanced the horizon of the right to life under Art. 21. The Supreme Court held that life shall not mean mere animal existence but a dignified life. The preference for a type of food and its consumption is inarguably an individual choice and thus it shall not be infringed by the state under the guise and veil of morality and increasing crime. The prohibition also does not form a reasonable nexus as from the objective sought to be achieved, for example, the excise revenue of the neighbouring states has been growing since the enactment of complete prohibition in Bihar, this fact hints to supply of banned liquor from these states in Bihar. In the National Family Health Survey of 2019-21, the percentage of men above 15 years of age consuming alcohol is about 15% which is more than states like Maharashtra and Uttar Pradesh, where no such prohibition is in place. It is clear that instead of reducing the consumption, the prohibition of alcohol has increased adulterated liquor and its circulation. This consequently has put people belonging to lower strata of the society consuming denatured liquor at risk, as recently occurred in the state of Bihar. The constitutionality of the prohibition laws in the country can be evaluated by drawing an analogy to ‘obscenity’ in art and expression. Obscenity, similar to alcohol, is considered immoral by society and several governments have tried to censor the circulation of such expressions citing that these would corrupt the minds of people.

However, the Supreme Court through a series of judgments for example in Bobby Art International v. Om Pal Singh Hoon,  has held such censorship in the name of morality to be invalid and unconstitutional. Similarly, consuming liquor shall be a personal choice and the government should not dictate its moral standards upon the people and infringe on their right to choose, which also forms a fundamental aspect of one’s life. Thus, the courts must evaluate the constitutionality of the prohibition laws in consonance with the Right to life, under Art 21 and also Art 19 (1)(g) with regards to Freedom to Trade and Occupation as far as the ban on sale and manufacturing is concerned.

The Problem in The Approach

The powers to formulate a prohibition policy is within the jurisdiction of a state by the virtue of the list 2 of the seventh schedule of the constitution. However, any government exercising the powers to implement the complete prohibition of alcohol as in the case of Bihar, needs to assess the economic trade-off the prohibition could lead to. The viability of a law banning an item that is otherwise an enormous source of revenue for the state is essential for the state’s financial health. These policies root in a populist approach to problems and are in many cases not even effective enough to mitigate the problem for which it was enacted. The right approach in these cases would be to educate the masses to bring or inculcate the sense of either morality or the judgment of balanced consumption which would neither impact health nor law and order in the society. This can be done by bringing in changes in school curriculum for middle and high school children, which will help in increasing awareness regarding the negative impact of alcohol consumption on health and productivity. The government can also undertake state wide awareness campaigns on the similar lines to that of climate change.   Banning is a shortcut approach that instead of solving the problem, gives rise to additional problems.

The government in order to shrink the losses from prohibition of items like alcohol can take some policy decisions. The increase in property registration fees is one such policy change which has the potential to mitigate the losses from the prohibition of liquor.In Bihar 40% of the people are below poverty line and close to 40% of the population is illiterate.incentivizing small-scale labor-intensive industries will help the government to broaden its tax basket and will also spur industrial production in the state along with providing employment to people in huge number.

Siddharth Sharma is a law student at the Institute of Law, Nirma University