Desirable and Feasible – A critical look at the Tamil Nadu Budget By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran

July 27, 2015 | Posted by bobbysrinivasan << back to blog

The major conundrum in the Tamil Nadu politics today is the desire to introduce liquor prohibition in the state. The doyen leader of the DMK party, Mr. Karunanidhi made a political announcement recently that if elected in the forthcoming election his party would introduce the liquor prohibition to Tamil Nadu at any cost. This announcement while laudable could at best be termed as an emotional outburst and political demagouery. Given the present availability of the state resources and putting it in plain terms the idea is infeasible. The facts and figures show that a significant portion of the state revenue is derived from liquor taxes and that no other alternate tax even if introduced will meet the state fiduciary needs. Before we present our argument here, let us look at the state revenue and expenses (source: Times of India, dt. 22^nd July 2015).

Revenue (2015 – 16)		Expenditure (2015 – 16)
State Non-tax Revenue	6%	Social Services	38%
Share of Central Tax	15%	Economic Services	20%
Grants-in-aid from Center	7%	General Services	33%
States own tax Revenue	72%	Grant-in-aid contributions	9%
Total	100%	Total	100%

Some observations

Of these nearly 30% of the state’s own tax revenue comes from liquor taxes. In other words more than 20% of the entire government receipt comes from liquor tax. This is much higher than all the contributions made by the center.
The states excise revenue is a summation of excise duty on production of liquor and its ingredients like molasses and spirits.
The state carries a lot of liabilities which needed to be addressed, before any revenue stream can be stopped. The salaries, pension, subsidies and transfers have gone up in double digits in the recent years thanks to the pay commission hike. Very soon the 7^th pay commission will be released and this will obviously increase the cost of running the government.
The interest payment on the previously borrowed money is taking away, a significant portion of the revenue.

The following data will show how much important is the liquor revenue for the state

Year	State Excise (in Crores)	Sales Tax on liquor (in Crores)	Total tax revenue from liquor trade (in Crores)	% of Tamil Nadu’s own tax revenue (in Crores)
2012-13	12126	9342	21468	30.1%
2013-14	5869	12533	23401	31.8%
2014-15	6483	19812	26295	30.7%

First, one should remember that all the subsidies and paying for the pet schemes have all come from the liquor tax.

Therefore it is quite clear that Tamil Nadu government needs this liquor tax money and any effort to bring in prohibition will not be possible. To accommodate the loss of revenue, many of the social programs which are currently in existence will have to be withdrawn. Tamil Nadu may not want to consider increasing the property tax, the water tax and professional tax in lieu of liquor tax. But this will create only social unrest. The GST scheme if implemented could possibly augment the state tax revenue. But if consumption dries up this will not be the case.

One thing is certain, drinking is an addiction. So those who drink will continue to drink either by buying from the neighbouring state or brewing it themselves illegally. One plausible explanation for Mr. Karunanidhi’s demagouery is to get the women voters to support his cause. Will this change the mindset of the alcohol drinkers? We doubt it. In conclusion, his intentions to control liquor consumption is good, but will not succeed as it is neither economically viable nor will addicts change their habits.

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