Liquor ban likely to cost Tamil Nadu Rs 7,300 crore

Ruling AIADMK and Opposition DMK have promised a ban on sales

Tamil Nadu is expected to forgo Rs 7,300 crore in revenue if the state government bans the sale of liquor after the Assembly elections.

The ruling All-India Anna Dravida Munnetra Kazhagam (AIADMK) and the Opposition Dravida Munnetra Kazhagam (DMK) have promised a ban on liquor sales, which contributes 5 per cent to the total revenue of the state government.

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It will be a difficult decision for the coming government because revenue from the sale of liquor has been on the rise and helps in bridging the fiscal deficit.

The state's fiscal deficit was 2.9 per cent of the gross state domestic product in 2015-16. The share of state excise in total revenue in 2015-16 was Rs 7,296 crore against Rs 6,483 crore in 2014-15.

Tamil Nadu's political parties found an opportune moment after Bihar Chief Minister Nitish Kumar gave in to popular demand for a liquor ban in his state.

Kumar's decision will cost the exchequer nearly Rs 4,000 crore, or 4 per cent of the state government's total revenue. He, however, said the government would better manage its finances.

Bihar's fiscal deficit was 5.8 per cent of the GSDP in 2015-16, the highest among all states. The newly elected state government is expecting the National Democratic Alliance (NDA) government will fulfil Prime Minister Narendra Modi's promise of a Rs 1.65 lakh crore package announced during the last year's Assembly elections.

Moreover, the state government did not announce any new taxes in the 2016-17 Budget and its tax revenue is expected to decline from 6.8 per cent of the GSDP in 2015-16 to 5.3 per cent in 2016-17.

Tamil Nadu and Bihar can draw lessons from Kerala, which announces a phased ban on liquor sales in October 2014. Kerala is planning to completely ban liquor sales in the state by 2024 to gradually absorb the losses.

The state government received Rs 1,000 crore less in revenue in 2014-15. Before enforcing the ban, the Kerala government had expected to generate Rs 3,208 crore in 2014-15, but its earning were restricted to Rs 1,977 crore. For 2015-16 state excise was expected to generate Rs 2,600 crore, or 3.4 per cent of the Kerala government's total revenue.