Why prohibition has left Bihar staring at bleak times

In Bihar, prohibition hits breweries and bottling plants, leaves liquor companies, investors angry

At the Bihar Global Meet at Patna in 2012, Karan Bilimoria, co-founder of Cobra beer, was trying hard to answer tough questions related to selling alcohol in the land from where Mahatma Gandhi started his political journey in India. “With 65 per cent alcohol, country liquor is far worse than beer that contains only 5 per cent. Had Mahatma Gandhi been here today, I would have offered him a non-alcoholic beer,” said the Indian-born British businessman.
 
The ministers of the National Democratic Alliance government were aghast. Economist Abhijit Sen, who was moderating the session, quickly ended the discussion. Chief Minister Nitish Kumar told Bilimoria: “What have you done? I will have to face the wrath.”  Indeed, Kumar and his deputy, Sushil Kumar Modi, had a tough time pacifying the agitated Rashtriya Janata Dal MLAs in the state Assembly over this statement.

 
 However, the noise didn’t stop Bilimoria from setting up a brewery near Patna with an investment of Rs 40 crore.
 

“With this investment, we will produce 150,000 hectolitres of beer every year, which is nowhere close to the demand, Bilimoria told Business Standard. He argued that the per capita consumption of beer in Bihar was amongst the lowest in the country and that beer constituted only 10 per cent of liquor consumption in state, which left a significant upside for growth. “Bihar has a lot of potential,” Bilimoria added. “We are happy to be a part of the Bihar success story.”

 
He then went on to compare Kumar with former British prime minister Margaret Thatcher. “He is trying to steer the beleaguered state on the path of development.  He is a visionary leader,” said Bilimoria, the son of an Indian Army general.
 
Unemployment woes
 
Cut to five years later. Sanjay is planning to move to Gujarat or Haryana and look for work there. He still can’t make-up his mind about the destination, but he is sure about leaving Bihar. “There is no work here now. The factory has been closed for months now,” says the father of two. “I don’t think the plant is ever going to be re-opened. There is no use of waiting around.”

 
Sanjay used to be a worker at UB Group’s bottling plant in Hathidah near Patna. Famous for the whiskey that is bottled here, the whole area is known as McDowell chowk. However, the plant was the first to shut down soon after total prohibition was imposed in the state in 2016.
 
By the end of next month, all the other 20 breweries and bottling plants will also be officially shut down. The state government in January decided to tweak the provisions of the Bihar Prohibition and Excise Act, 2016 and decided not to renew the liquor licenses.
 

“There is no sense in brewing or bottling liquor in a dry state. Therefore, we decided to pull the plug,” Bihar Excise Minister Abdul Jalil Mastan says with evident triumph. “From April, not a single drop of liquor can be legally made or sold in Bihar. It will show our resolve towards making India a liquor-free society.”
 
This will flush down the drain investments worth Rs 1,000 crore and more than 2,000 people will be unemployed as a result. But, this doesn’t seem to be the concern of the state government. “We have offered support if any of these plants wants to switch to any non-alcoholic produce. It’s up to these companies to decide. After all, this is their money and they are their employees,” says Mastan.

 
Unhappy investors
 
Between 2011 and 2015 the investment in breweries and bottling plants had a manifold growth, leading to a sharp rise in production. Cobra, which began operations with a capacity of 150,000 lakh hectolitres in 2012, produced more than 500,000 hectolitres in 2015-16. Others such as UB Group and Carlsberg had also joined Cobra in the state. By March, 2016, there were 21 breweries and liquor bottling plants in Bihar. The average consumption in the state rose from half-a-litre to one-and-a- half litres every year in this period. Then came the shock on 5 April last year when the state government imposed complete prohibition.

 
On the very same day, Chief Minister Kumar also announced that the state government would not approve any investment proposal related to liquor.
 
“However, given the fact that we had already renewed the licences of the existing units for the current fiscal, we decided to exempt them,” says a senior bureaucrat in Patna. “This time, we didn’t have that compulsion.” However, it doesn’t explain why in October 2016 the state government waived off the bottling and export levies on these units that cost the state government almost Rs  8 crore.
 
Naturally, this has made liquor companies and investors angry. “Since March 2016, every action by the government has been sudden and kneejerk. Initially it prohibited the consumption of alcohol but thereafter encouraged manufacturers to continue production by offering sops in a bid to earn revenues, only to completely ban production,” says United Spirits Chief Strategist Abanti Sankarnarayanan.

 
“It doesn’t make any sense,” says Satyajit Singh, who heads the Bihar chapter of PHDCCI, “First you invite somebody to invest in the state and then you without any notice ask them to pack-up? It will only hurt the image of Bihar. The state government must offer them a golden handshake. This is the least the state government can do.”
 
However, the state government is not convinced. “The state government is well within its right to not renew these licences. We had inserted specific clauses for this in the agreements which we signed with these companies. It has and always will be our decision whether we want liquor units operational in state or not,” says Mastan.

 
However, the reason behind this hard stance of the state government is said to be the earning deficit. The state government had targeted a total of Rs 22,000 crore from commercial taxes in this fiscal, but as of January the figure remains at Rs 12,000 crore. Most of the officials estimate that the earnings will not be able to touch last year’s Rs 18,000 crore. It will be the first time in the last nine years that the state government is going to fall behind its earnings estimates. “We have no money to offer them as compensation. It’s as simple as that,” says another senior bureaucrat.

 
Frustration  over government stance
 
However, it did bring the state some infamy. Last year, Carlsberg India CEO Michael Johnson publicly lambasted the Nitish Kumar government for wooing the company for years, and then giving it just 12 hours to wrap up their business in Bihar. The company had invested more than $25 million to set up a beer unit near Patna. The company declined to speak when asked for a reaction. Cobra Beer also did not speak over the matter.
 
“The government's decision to ban alcohol last year and the decisions thereafter have come as a surprise every time with no intimation. We have stopped production at all our sites in Bihar and are in the process of shutting them down,” says Sankarnarayanan.

“First thing, it’s the state government that invited liquor units to Bihar. The cost of investment in state is very high as land is very costly. Despite this the companies invested heavily  as the government assured them of a market. The units not just produced alcohol but also offered jobs to thousands of men. In a state where industrialisation is way below the national average, the state government could have tried to save them. Instead, it asked them to pack-up. It will send a very bad signal,” says Amrit Kiran Singh, chairman of the International Spirits and Wines Association of India, an association of blue-chip multinational companies in the spirits and wines business.

 
Even the Bihar Chamber of Commerce and Industries, which is generally seen backing all state government decisions, had requested that the state government must compensate in order to preserve the image of Bihar. “We must not do anything that tarnishes our image. We need investment from outside. Therefore, we should either compensate the companies that are set to lose money because of this ban or provide them an alternative source of income,” says  president, PK Agarwal.
 
However, with more than 15,000 people behind bars and 400,000 litres of liquor seized, Nitish Kumar is the new poster boy of prohibition in the country. Even Gujarat has copied some provisions of Bihar's prohibition law. In this scenario, no one in the state machinery expects any change in the state government’s stance.

 
As a result, the state could lose investments in the days to come. It can be better understood by the fact that in 2012 the state government had received more than Rs 24,000 crore of investment proposals, whereas this year it had received investment proposals that were worth just Rs 6,500 crore.