The Indian Liquor Industry Prohibition Story

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The Indian Liquor Industry

The Indian liquor industry is divided into two broad segments: Indian Made Foreign Liquor (IMFL) and country-made liquor. IMFL comprises alcoholic beverages that were developed abroad but are being made in India (whisky, rum, vodka, beer, gin and wine), while country-made liquor comprises alcoholic beverages made by local breweries. While many Indian and MNC players were present in the IMFL segment, the unorganized sector accounted for almost 100% of the country-made liquor segment.

Prohibition in the US

Alarmed by the increase in drinking, gambling, prostitution, tobacco consumption and crime in the 1910s, the US government decided to impose prohibition. This was accompanied with the building up of a strong anti-drink sentiment by terming alcohol as 'anti-religion' and 'anti nation.' However, the industry soon went underground and the number of illicit distilleries increased from 95,993 in 1921 to 282,122 in 1930. The number of people arrested for bootlegging reached 75,307 in 1928. Organized crime entrenched itself in a big way in the business with mafia leader Al Capone reportedly making $ 60 million through illegal liquor sales. Over 10,000 people died after consuming spurious alcohol. Sociologists said that since alcohol was made illegal, people drank more to rebel against a system that sought to control their lives and choices. Ultimately, supporters of prohibition became disenchanted with it, and in 1933, prohibition laws were changed. Gradually, states across the US lifted prohibition, and by 1966, all the states had abandoned it, either completely or partially.

During 1999-00, the Indian liquor industry grew at the rate of 10-12%. While IMFL was consumed by the middle and upper classes of society, country-made liquor was consumed by the economically deprived classes. In India, 40-50% of all males and 1% of all females consumed alcohol. Almost 62% of the drinkers could be classified as light drinkers (i.e. social drinkers), 29% percent as moderate drinkers, and about 9% as hard drinkers. Many government restrictions regulated the liquor industry. Companies are not allowed to expand capacity without prior approval from the concerned state government. The government has banned the advertising of any alcoholic product in the electronic media. As a result, companies have resorted to surrogate advertising (advertising for sodas and lemonades using the liquor brand name). However, some states have even banned surrogate advertising. The satellite television channels initially showed liquor advertisements, but were soon banned from doing so. As a result, liquor companies could publicize themselves only through sponsorship of sports events and contests.

The distribution of liquor was also under state control in many states, in the form of auctions, open-market system and government-controlled markets. Under the auction system, the government fixed a floor price for the shops and the bidders had to quote prices. The license was given to the highest bidder. States following the open-market system gave companies substantial freedom to choose their distributor and to determine the price and the discounts.

In the government-controlled system, liquor was distributed by state agencies such as BEVCO (in Kerala) and the Andhra Pradesh Beverage Corporation (in Andhra Pradesh). There were around 25,000-27,000 licensed retail sales outlets in the country, in addition to the bars, pubs, hotels and restaurants serving liquor. There were restrictions on the business hours of these outlets and location.

The above restrictions were, however, viewed by many critics as attempts by the state governments to disassociate themselves from the social evils associated with alcohol consumption. While on the one hand, the state governments imposed many restrictions on the companies, they also earned a significant portion of their revenues (Rs 200 billion in 2000 for the whole country) through the levies on liquor sales. The industry, along with the tobacco and cigarette industry thus had to cope with government regulations and also face the hostility of those who felt that the state should not have allowed the trade in alcohol in the first place.

Prohibition in India

Soon after independence, prohibition was imposed in the erstwhile state of Bombay. The first large-scale movement against alcohol began in the 1970s, when rural women in various parts of the country protested against the sale of liquor in their villages. Explaining this, a news report commented, "Tortured to intolerable limits by the abuse and beatings of drunk husbands and the hunger and poverty in which their children grow and die, women have taken up chilly powder, broomsticks, kerosene and match boxes as weapons of war."² Over the next two decades, this movement went on to encompass millions of rural women.

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2] Andhra Pradesh: The great betrayal, www.indnet.org, April 29, 1997.