Bottles of Royal Challenge whiskey produced by United Spirits Ltd., a distiller partly owned by Diageo Plc, sit on display at a roadside liquor store in Gurgaon, Haryana, India. (Photographer: Udit Kulshrestha/Bloomberg)

Alcohol Ban Unlikely To Hurt State Finances, Says Motilal Oswal

A ban on alcohol production is unlikely to "meaningfully" hurt state finances, brokerage firm Motilal Oswal said in a report.

The report attributes Karnataka to be the most dependent state on alcohol as it has planned to collect almost 12 percent of its total receipts through alcohol in the current financial year 2017-18.

Alcohol Ban Unlikely To Hurt State Finances, Says Motilal Oswal

A total of 17 states have budgeted to collect a sum of Rs 83,300 crore in FY18, which is a growth of 14 percent, compared to the 10 percent growth in the last three years, the report said.

The share of alcohol receipts has fallen from a peak of 6.3 percent in FY16 to 4.2 percent in FY17. Motilal Oswal expects the figure to remain unchanged in FY18.

Of the four states that have announced a ban on alcohol production and sales, Madhya Pradesh and Bihar have seen a reduction in alcohol as a source of revenue. The alcohol ban has cost Bihar an approximate sum of Rs 3,000 crore in revenues, the report said.

Alcohol Ban Unlikely To Hurt State Finances, Says Motilal Oswal

The share of alcohol in the total receipts for Madhya Pradesh fell to 5 percent from 7 percent in FY11. The share in FY16 fell to as low as 0.6 percent or Rs 700 crore. Motilal Oswal, therefore, does not see the ban having an impact on the state’s finances.

However, the state of Kerala has seen an increase in its collection from alcohol, despite the government restricting the sale of alcoholic beverages barring beer and wine. Collection grew 11.2 percent in FY16 and is estimated to grow almost 22 percent in its revised estimates for FY17.

The share of alcohol taxes is likely to increase to 3 percent in FY18 from 2.6 percent in FY16.

Despite much noise around the ban, it has not managed to dent state finances. While Madhya Pradesh and Bihar had a cumulative impact of Rs 4,000 crore, the increase in taxes in Tamil Nadu and Kerala shows the ineffectiveness of the ban, the report said.