New Delhi: Uttar Pradesh’s (UP) excise department has shot to the spotlight with an astonishing revenue of Rs 42,250 crore in FY23, propelling it to the top in revenue generation among states.
The National Capital Region (NCR) towns of Ghaziabad and Noida are among the leading contributors to this revenue, according to UP excise department officials. In contrast is neighbouring Delhi, which is mired in controversy over its now-withdrawn excise policy of 2021-22.
The Aam Aadmi Party-led Delhi government had in November 2021 rolled out the new excise policy, bringing a massive rejig in the Delhi retail business by getting it out of the clutches of the government and handing it to private players. But within months, the policy came under scrutiny.
Two leaders of the AAP in Delhi — deputy chief minister Manish Sisodia and Rajya Sabha MP Sanjay Singh — have been arrested in connection with the probe into the Delhi excise policy, and a summons has been issued to chief minister and AAP chief Arvind Kejriwal by the Enforcement Directorate (ED).
According to the ED, there were “gross procedural lapses” in the policy, and it was allegedly crafted by senior leaders of the party with the intention to “create and divert illicit funds for their own benefit”. Kejriwal has termed the scrutiny that led to the scrapping of the policy in August 2022, and the arrests and summons in connection with it, “politically motivated”.
The major changes to UP’s policy were implemented in 2018-19 (with further developments in subsequent years), just a few years before Delhi’s policy. But while both promoted private players in the liquor sector, they’ve had vastly different results.
Businessmen say that while Delhi’s policy — reworked after a long time — was progressive, it wasn’t handled well.
ThePrint takes a look at what the excise policies of Delhi and UP are all about, why Delhi’s policy fell through while UP’s grabbed the top spot in revenue generation, and the key points of difference between the two.
The basic difference is that Delhi’s policy was a licence-based model while UP’s is a consumption-based model.
In a licence-based model, the focus is on drawing money from licence fees, which are kept high — in crores — while the excise duty is comparatively lower.
In a consumption-based model, the licence fee is kept at a minimum while excise duty is hiked.
Bidding or e-lottery
In Delhi’s policy, licences were granted to liquor traders through open bidding, which led to charges of favouritism and cartelisation. An individual or entity could bid for more than one zone, creating monopolies.
“Only the highest bidder would get the licence under the scrapped Delhi policy. There was no space for a small businessperson,” a Delhi liquor businessman told ThePrint.
UP, in contrast, uses an e-lottery system that allows small players to enter the industry.
The excise duty is higher in UP, while the licence fee is lower. So, any small businessperson can get a licence through the e-lottery — based on chance, not finances — and the government obtains revenue from the excise duty. This has opened the way for new players in the state and helped break the monopoly of big businessmen.
Who can apply for licences
There are two basic types of licence: wholesale and retail. But who can apply for these?
Delhi’s policy said that a wholesale liquor licence would be given to “the entity applying for the licence in Form L-1 (which) shall have a wholesale liquor distribution turnover of minimum Rs 150 crore every year for three consecutive financial years”.
But in Uttar Pradesh, no such turnover is required. To apply for a wholesale liquor licence, one needs to give a solvency certificate equivalent to the licence fee. The fee varies from a minimum of Rs 10 lakh to Rs 36 lakh (for high-end liquor).
A solvency certificate is a document that provides information about the financial stability of an individual or entity.
For retail vends, two conditions were required for a licence in Delhi — proof of filing of income tax returns (ITR) for the last three assessment years and net worth of at least Rs 6 crore for zonal licences.
In Uttar Pradesh, only character and solvency certificates are required for a retail licence. A character certificate is to ensure that there are no criminal cases against the individual or entity.
Carpeting area stipulation
Carpeting area is the net usable space for a liquor store. In the scrapped Delhi policy, the carpeting area for liquor vends was 500 sqft and for super premium vends, it was 2,500 sqft.
“The carpeting area created a lot of trouble for liquor store owners. They were unable to find such a huge space and many times, the Residents’ Welfare Associations and the Municipal Corporation of Delhi opposed the opening of stores. So, it was always mired in controversy and the business class were feeling the heat,” an owner of a liquor warehouse in Delhi told ThePrint.
But in Uttar Pradesh, no such criteria were stipulated, except for the premium vends in malls that must have a 500 sqft carpeting area, and model shops with canteens for people to drink in, which have to have at least 600 sqft. The idea was to give flexibility to businesses.
Allotment of vends
Under the Delhi policy, the city was divided into 30 zones. Each zone had 9-10 wards and the zone licencee was allowed “to have a maximum of 27 retail vends and an average of three retail vends in each ward”.
This means that a single person could own up to 27 retail stores, leading to a monopoly in the zone. An individual or entity could also bid for more than one zone.
Meanwhile, in Uttar Pradesh, a person can only have two retail stores to their name, opening up the market for competition.
Discounts
The price of a liquor brand was fixed in such a manner by the Delhi excise department that consumers would no longer have to go to Gurgaon to buy cheap alcohol.
In the scrapped policy, the government offered discounts. It said that if a retailer wanted to sell liquor below the maximum retail price (MRP), they could. That initially led to big discounts.
“The vendors used discounting to move from value-based system to a volume-based system by selling more alcohol and generating revenue. Some sellers also gave offers like buy-one-get-one-free,” said another liquor store owner in Delhi.
Later, the government intervened and said such discounts could only be for up to 25 per cent of MRP.
But in Uttar Pradesh, there is no discounting mechanism. The MRP is set for a brand by the excise department and it is sold at the same price.
“The UP government gets its revenue mainly from excise duty. The revenue comes from licence fee as well as excise duty. So when the licence fee is minimal, excise duty is high,” said a liquor businessman in Noida.
(Edited by Nida Fatima Siddiqui)
Also Read: How the non-brand-conscious drinker saved Delhi revenues from excise policy hit