Upholding Economic Freedom

Prohibition is conceptually against the very essence of economic freedom, apart from the various challenges in implementation.

A hooch tragedy is on the way. It is unfortunate, but inevitable. A week after Bihar Chief Minister Nitish Kumar came to power, he announced the first implementation of his promises — prohibiting the production, storage, distribution, and sale of alcohol in his state with effect from 1st April 2016.

There’s a new wave of prohibition going around the country. Kerala declared prohibition a year ago, Bihar has just done it and Tamil Nadu might just witness it if the DMK comes to power. Interestingly enough, states in India which have had prohibition for decades are beginning to realize its folly and are lifting the ban on alcohol sales and distribution. Mizoram Finance Minister, Lalsawta, openly declared that ‘prohibition just did not work’ in his state. Manipur, which has had a prohibition for 24 years, is beginning to question its merits and might remove the ban some time soon. For a brief history of prohibition experience in various states in India, read this article in Mint.

The upcoming prohibition in Bihar is an unwise move on many grounds
The upcoming prohibition in Bihar is an unwise move on many grounds

Prohibition is objectionable on many grounds. Firstly and perhaps, most importantly, it is conceptually against the idea of economic freedom. Quite a few of us often celebrate the great strides in political freedom that this nascent democracy has made. Freedom of speech, human rights, universal suffrage, etc were achieved right at birth, notwithstanding the recent small bump on the road. However, when it comes to economic freedom, we are often shortchanged and we tend not to notice much. The idea of liberty that is enshrined in the constitution should inevitably contain within it, the idea of economic liberty. The Republic of India is not a nanny State and should not dictate our economic decisions. Yet, that is exactly the position we find ourselves in today. States impose high taxes on luxury goods and on sin products such as alcohol and tobacco, if not entirely eliminating the scope for its production, distribution and consumption. The very idea that an external entity should dictate one’s choices should be repugnant. Every citizen should have the freedom to spend her hard earned money in any way they so please, subject to reasonable restrictions.

The second problem with prohibition is the state capacity to implement it. Every state in India that has tried to implement prohibition has failed miserably. Economics 101 tells us that supply will always creep up where there is a demand and that is exactly reflected in the ground in these states. Again, the experience of Manipur and Mizoram, states which have had prohibition for the last two decades can be telling here. Both the states have admitted that prohibition was a complete failure and that liquor has always made its way from the neighbouring states. Prohibition also leads to a law and order situation with several new ‘enterprises’ which will spring up in order to cater to this demand. Unfortunately, all these enterprises will be part of the underground economy and impossible to control and regulate.

By making it illegal, the states essentially lose control over its production and consumption. If it is legal, the states can monitor how much is consumed and can try to influence the quantity consumed through various policies. They give up this control the minute it is made illegal.

Even if the state can ensure that there is no illegal movement and trade of these commodities, it will give way to a much bigger problem. The inevitable consequence is the rise of illicitly produced liquor, which has led to far too many deaths in our country. Hooch tragedies are almost a direct result of prohibition and excessive taxation, as this article points out.

Finally, the state loses out on precious revenue streams generated by the alcohol industry. The Manipuri Chief Minister, Okram Ibobi Singh, made a case for removal of prohibition by stating that the government was unable to carry out many of its welfare schemes due to the lost revenue from taxing alcohol sales and all the benefits were being accrued by the neighbouring Assam government. The money earned through excise duty can be channeled into rehabilitation and counselling centres, as Narayan Ramachandran points out here.

It would behove the Bihar Chief Minister to heed to the lessons learnt by the experiences of other states in India, if not national governments the world over. Further, Bihar would not want to lose the growth momentum it has gained in the past decade and would want to establish itself as a modern state which respects its citizens economic freedom.

Anupam Manur is a Policy Analyst at the Takshashila Institution. He tweets @anupammanur

Disclaimer: The author does not have any vested interest in arguing against prohibition.