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Sin pays - The urge to restart liquor

The lock-down closed down sale of all non essential items, which included the sin goods - liquor and cigarettes. One would think the government would like to utilize the extended lockdown to aid people to kick the habit, But while governments have been strict about their enforecement of the lock-down, they also seem eager to get the liquor stores up and running.

Firms that sell these sin goods are things everyone loves to hate - but the fact remains that they are amongst the most consistent sources of revenue for the country. It also supports farmers, workers, and white collar employees producing a product that people fully aware of the health risks willingly consume. In today's post we analyze the fiscal, economic, and financial impact of restarting the liquor industry.

The fiscal angle

In these trying times the government finds sources of revenue increasingly dry up as the need to provide stimulus rises. In such an environment, an industry that provides more than 2 lakh crores in state and central taxes is something that you wouldn't want to miss out on. More importantly the stability of the industry, for reasons good or bad, means that the contribution will remain attractive even as other industries struggle.

As the lockdown extends, more individuals and industries will get hit, making a larger recovery package from the government critical. And while the argument can always be made to loosen the fiscal stance, that may not be the best way to proceed especially given the extremely hawkish stance of the rating agencies on sovereign ratings.

The economic angle

The industry directly or indirectly employs more than 2 million people. These folks fall in all socio-economic strata, from the rich white collar workers working with the brewers, to the middle-class liquor shop owner, to the poorest farmers and labourers making the raw materials and working in the factories.

While similar numbers would probably hold true for a variety of other industries, the case is stronger because the industry could be restarted while maintaining social distancing and all required norms, and will continue to see a strong pull for its products in the market.

The social angle

This is perhaps the most tricky aspect of the whole puzzle. On one end, while reduced drinking should have positive health benefits for the society as a whole, the impacts have been severe for "forced rehab" cases, with a few alcoholics committing suicide due to unavailability of alcohol.

While the libertarian argument would simply push for folks to do what they want, the counter would push for the government to use this opportunity to help folks kick the habit, albeit in an unsupported way.

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About the Author: The post is written by Ganesh Nagarsekar. Ganesh is a graduate from IIM Calcutta and has worked with J.P. Morgan and Goldman Sachs, before founding GSN Invest.


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