Kerala shamelessly after liquor and lottery: Who's right — Guv or Isaac?

On September 19, when he set a new precedent for India by calling a press conference, Governor Arif Mohammed Khan expressed biting scorn for the Kerala government's fiscal management. “Lottery and alcohol are our main sources of income. What a shame!” he said.

Former finance minister and CPM ideologue T M Thomas Isaac sought to disagree. He said the combined earnings from liquor and lottery were only 13 percent of Kerala's revenue receipts.

Any growth in revenue should ordinarily be seen as a triumph. But by saying that the Governor had exaggerated the figures, Isaac was virtually conceding that it was indeed embarrassing for Kerala to collect most of its revenue from lottery and alcohol.

Also, Isaac's statement could be misleading. He was using budget figures to suit his argument. When he said that the combined revenue from liquor and lottery was 13 percent of the total revenue receipts, Isaac had included central transfers too in the equation along with the state's own tax and non-tax revenue.

 

Booze and luck prosper
However, if the state's own revenue alone was considered, the picture would be different. Till 2019-20, the last year for which we have official figures of the sales tax collected from alcohol, the combined revenue from the sale of liquor and lottery constituted 36.05 percent of the state's own revenue, which was Rs 62,588.22 crore in 2019-20. (Lottery - Rs 9973.67 crore, state excise - Rs 2255.28 crore, sales tax on alcohol - Rs 10,332.39 crore).

Even the GST collection was just 32.66 percent of the state's own revenue.

To know how lottery and liquor have grown in importance over the years, consider this. In 2010-11, the year before the introduction of Karunya lotteries that stoked a spike in lottery consumption, the VAT revenue, GST's older version, constituted more than 60 percent of the state's own revenue.

In 2018-19, the combined lottery-liquor revenue was 34.28 percent of the state's own revenue. In 2017-18, it was 34.94 percent. In 2016-17, it was 34.46 percent. In 2015-16, it was 25.56 percent. In 1970-71, it was Rs 14.77 percent. Clearly, revenue from both these sources has been rising.

 

Post-Covid revival
During Covid, the collection from both these sources declined, but this was part of a general fall in revenues. Now, things are getting back to normal. This year the government had earned Rs 270 crore, excluding the prize money and GST, from the Onam bumper alone. This is more than double last year's revenue of Rs 124 crore.

Liquor sales, too, hit a new record this Onam season. The week leading up to Onam witnessed a sale of Rs 624 crore, nearly Rs 100 crore more than the corresponding period's collection of Rs 529 crore last year.

 

Poor man's rum, rich man's price
The problem with liquor and lottery is that the consumption of these items is a bigger drain on the economically underprivileged than on others. In the case of liquor, in addition to squandered family incomes, it is a major health hazard. Therefore, the growing revenue from these sources is not something governments can be overtly proud of.

Yet, there is merit in the argument that Kerala is doing all it can to maximise revenue from these two sources. At 254 percent, Kerala has the highest sales tax on liquor in the country; in 1960-61, it was 25 percent. (Alcohol has still not been brought under the GST regime.)

So a 750 ml bottle of Bacardi Classic Super Rum, which the Beverages Corporation purchases for Rs 167.36, is sold at Rs 1240, or an Officer's Choice Rum, purchased at Rs 61.03 a bottle, is sold at Rs 650.

Economists have argued that such excessive taxation hurts the poor. “There are many in our society for whom alcohol is an essential good. Take agricultural workers or construction workers or loading and unloading workers who engage in hard physical labour. For them, liquor is a traditional form of relaxant,” said economist Jose Sebastian who had done research on drinking habits in Kerala.

“It will be impossible for them to keep away from drinks, and high liquor prices would mean that only an insignificant portion of their daily earnings reach their homes,” he added.

 

Government's moral subterfuge
Not to make this look extortionary, the government reasons that such a punitive rate of taxation is a way to induce abstinence among the general public. Instead of officially prohibiting liquor, the LDF government argues that it is forcing drinkers to quit the habit.

Truth is, even the government knows that high taxation will not impact liquor sales in Kerala. Therefore, this talk of weaning people away from alcohol by raising taxes is just a means to make avarice seem civilised, like a prayer before a ritual killing.

 

Jackpot's own country
Besides Gujarat and Bihar, where prohibition is in place, most other states, like Kerala, attempt to profit from drinking. But Kerala is unique when it comes to the business of lottery.

Nearly 90 percent of the total revenue from lottery sales in India is collected from Kerala. In 2019-20, the last fiscal for which the RBI data is available, the total revenue from the lottery in the country was Rs 11,420.51 crore. That fiscal, Kerala's revenue from lottery sales was Rs 9973 crore, which was 87.33 percent of the country's total.

Goa, Maharashtra, Meghalaya, Mizoram, Punjab, Sikkim and West Bengal are the only other states that conduct lotteries. Among these, only West Bengal mobilises a reasonable amount annually, Rs 1250 crore, which is just about 11 percent of the country's total. Others do not make even Rs 100 crore annually.

 

Kaun banega crorepati
“It is usually underprivileged who seek out luck. So when people from lower middle-class families, auto drivers and truck drivers, are seen winning the jackpot, luck feels tantalisingly close. The craze for lotteries, especially among the poor, soars,” said Dr Roy Philip, a psychiatrist in a private hospital.

The announcement of the Onam bumper results on September 18, unlike any time before, was a major television event, attracting as much or more viewers than even state or national film award declarations.

Economist Jose Sebastian, who had done research on Kerala lotteries, said 74 winners of various weekly and bumper lotteries during 2018 and 2019 were migrant workers. In addition to six bumper lotteries, including the Rs 25-crore Onam bumper, the Kerala lottery conducts a draw almost every day.

Dr Philip said he knew daily wagers who purchased five to 10 tickets at one go. “The thinking is that even if you spent Rs 1000 for a clutch of tickets, there is a high chance that you could win lakhs or crores. Almost all of them end up with nothing,” Dr Philip said.

However, Lottery Department sources said that if Kerala withdraws from the lottery scene like most other states in the country, illegal lotteries will flood the market.