It is a moot point whether respective State Governments should impose prohibition, banning sale of potable alcohol. Some States like Gujarat and Bihar indeed have. There are arguments both for and against it. However, everyone admits that excise revenue arising out of tax on liquor sale constitutes a big chunk of the overall revenues of any state. At the turn of the century, there were unmistakable signs that the excise sector was struggling on account of monopolistic structure at least in the State of Uttar Pradesh. When S P Gaur took over as Secretary in the Excise Department of the State, he was briefed by the then Excise Commissioner, Pravir Kumar who too had recently taken over this sensitive assignment. He gave him an overview of the excise scenario in the State. The excise earning of about Rs. 2100 Crore constituted 17% of the total tax revenue. There was a monopoly of excise contractors. The distilleries and consumers were hapless sufferers at the hands of these contractors. Seven groups (each in one or a group of Districts) of excise contractors had taken control of the entire State, with distillers & consumers reduced to non-entities.
Under the prevalent system that was almost a century old, the excise vends came to be auctioned District-wise annually. A similar auction-based system was in vogue in most neighbouring States. Magnitude of licence fees for the district was so large (more than Rs.100 crore in urbanised districts) that small players couldn’t participate in the auctions. The whole process was reduced to a farce as a handful of big contractors cartelised and carved out their respective districts or a group of them for excise business. The monopolists would influence the excise policy, rules, dictate terms to the distillers and charged arbitrary price from the consumers. Not infrequently, they would refuse to yield any increase the bid amount. The government, expecting higher revenues in a competitive environment, was left with little elbow room to negotiate with the licensees.
The new team at the helm of Excise Department had the benefit of the K.N. Singh Committee Report that had highlighted concerns about the growing influence of excise monopolies. Further, a comparatively low per capita consumption of liquor in UP implied a suppression of consumption data by licensees. They had a vested interest in projecting lower sales, indulging in supply of illicit liquor, smuggling & excise duty evasion. The consumers, being unorganized and without a lobby, were made to pay the price. Besides, the supply of country liquor in poly-pouches spelt disaster for the environment with disposal of 100 lakh pouches every year. This disposal impacted water bodies as well.
The refusal of excise contractors to bid for higher revenues for 2000-01 precipitated a crisis. It was too late to make amends for the auctions due in March 2000. Major strategic reforms, however, became imminent in the excise sector of the State. S P Gaur and his team had consultations with all the stake-holders that included distillers, District Collectors and excise officials.
With support from Excise Minister and the new Chief Minister, Rajnath Singh, it was decided to undertake major reforms instead of tinkering here and there. A new Excise Policy (NEP) was considered. The objective of this Policy was to eliminate the monopolies, facilitate entry of new enterprise in excise sector and to settle the excise vends in a transparent and fair manner.
As a prelude to NEP, an innovative Beer Project, entailing a paradigm shift, was devised. The excise duty, collected at a brewery, was now to be a major source of excise revenue with licence fee playing secondary role. The Beer Project met with stiff opposition from the powerful contractor’s lobby. After a protracted legal battle, the government settled 1326 new beer licences in summer of 2000. The new licences, with a small licence fee and simplified terms and conditions, were allotted on the basis of publicly held lottery. This Project gave unexpected sales and opened up the system. Beer prices crashed from Rs.65 to Rs.35 per bottle. Besides releasing this segment of liquor from the clutches of regular contractors, it opened up the system and brought several thousand new entrepreneurs in the sector. A new excise policy (NEP) was born!!
Encouraged by the success of the Beer Project, the team toiled day and night to work out alternative options and their implications under New Excise Policy. An inter-State meeting of 10 major excise earning States was held in November, 2000 to identify the best excise practices & consolidate the essential elements of NEP without compromising the total revenue. It provided for low licence fee, simplified entry level terms & conditions, allotment of shops by respective District Collectors through public lottery, and set the vendors free to buy liquor from any State distillery. The country liquor pouches (200 ml) were to be replaced by bottles (180 ml). It introduced Maximum Retail Price (MRP) and holograms using latest technology for checking duty evasion.
There were apprehensions about a fall in excise revenue as every 180 ml bottle contained 20 ml less country liquor than a poly-pouch. Even the Cabinet Minister shared these apprehensions but he played along in view of the larger benefits. The NEP was approved by the Cabinet. The Policy was put into operation within 2 months. The Excise Minister was partly correct as during the first year of NEP, there was a lower increase in the revenue that was expected. Subsequently, however, the excise revenue rose phenomenally to reach Rs. 27,323 Crore. It also ensured safe and better quality liquor to consumers at a fair price. His place as a stakeholder was duly recognized. By eliminating the use of poly- pouches, the Policy reduced the soil and water pollution a great deal.
The team led by S P Gaur and Pravir Kumar demonstrated that out-of-box-thinking is possible in bureaucratic framework as well and if it is done by taking stake holders into confidence, with imaginative planning and meticulous execution, it can yield the desired results. Here was a team that made-it-happen and it sustained over the years as they put in place institutions to sustain what they had created.