The Delhi government’s ambitious 2021-22 Excise Policy—touted as a revolutionary step to revamp liquor trade, increase transparency and boost state revenue—has been exposed as a complete failure by a recent Comptroller and Auditor General (CAG) report. Instead of streamlining the liquor distribution process and increasing revenue, the policy led to a staggering loss of Rs 2,002.68 crore due to financial mismanagement, policy loopholes, and corruption. This newspaper was the first to report the excise policy scam.
The report, tabled in the Delhi Assembly by the newly formed BJP government, has ignited a political storm and deepened legal troubles for the Aam Aadmi Party’s (AAP) top leadership, including former Delhi chief minister Arvind Kejriwal, ex-deputy chief minister Manish Sisodia, and AAP Rajya Sabha MP Sanjay Singh. They are already facing legal scrutiny, with allegations of corruption and money laundering tied to the policy’s implementation. The three AAP leaders were arrested by CBI and the Enforcement Directorate and are out on bail. Beyond the political ramifications, the CAG’s findings reveal the economic impact of a policy marred by rushed execution, blatant deviations, and a disregard for financial prudence.
Cartels and brand pushing
At the heart of the 2021-22 Excise Policy was a complete overhaul of Delhi’s liquor trade. Government-run vends were shut down, and retail business was handed over to private players through a new licensing system. The move was justified on the grounds that it would increase efficiency, eliminate black market and generate higher revenues. The policy divided Delhi into 32 retail zones, with each zone having at least 27 wards. A total of 849 liquor vends were to be operated by 22 private entities, a significant shift from the previous system where four government corporations ran 377 vends, while private entities managed 262. The promise was that this new structure would end monopoly practices and ensure perfect competition.
Rather than increasing transparency and revenue, the new system facilitated monopoly, cartel formation and financial irregularities. “One of the objectives of the policy was prevention of the formation of a monopoly or cartel. The new policy had inherent design issues including the imposed exclusivity arrangement between manufacturers and wholesalers and formation of retail zone with a minimum of 27 wards in each zone. These issues resulted in limiting the number of total licencees and increased the risk of monopolisation and cartel formation,” read the CAG report, adding that cases of linked business entities holding licences across the supply chain and skewed distribution pattern highlighted the risk of exclusivity arrangements and brand pushing.
Making of an oligopoly
An alarming finding of the report is how the policy effectively handed control of liquor distribution to a select few wholesalers, creating an oligopoly instead of a competitive market. Under the previous policy (2020-21), wholesale licences for Indian Made Foreign Liquor (IMFL) and Foreign Liquor (FL) were granted to 77 IMFL manufacturers and 24 FL suppliers, ensuring a broad and diverse marketplace. In stark contrast, the new policy slashed the number of wholesale licencees to just 14 business entities.
More troubling was how these wholesalers gained an outsized influence over the liquor supply chain. Three major distributors —Indospirit, Brindco, and Mahadev Liquor—controlled over 71% of Delhi’s total liquor supply. The CAG found they had exclusive deals with liquor manufacturers, effectively deciding which brands would be available in the city. “..... Of the 367 brands of IMFL supplied by 13 wholesale licencees, the highest number of brands were exclusively supplied by Indospirit (76 brands), followed by Mahadev Liquors (71), and Brindco (45). The three wholesalers also accounted for 71.7% of volume of liquor sold in Delhi,” CAG said. The policy mandated that each liquor manufacturer could only supply their products through a single wholesaler, thereby blocking competition and ensuring that a few distributors could dictate market terms. As a result, top selling brands were concentrated in the hands of these select wholesalers, giving them excessive market power and the ability to manipulate pricing and supply.
Red tapism rules
One of the key objectives of the excise policy was to ensure a balanced spread of liquor vends across the city, particularly in areas where access had been limited. Yet, the CAG report highlights how the government’s failure to open vends in “non-conforming areas” resulted in a colossal revenue loss of Rs 941 crore. The policy aimed to expand the reach of legal sale of liquor, but due to regulatory ambiguities and administrative lapses, large sections of the city remained underserved. This led to a rise in illicit liquor sales, as consumers turned to illegal suppliers rather than official vends. By failing to operationalise stores in these designated zones, the government forfeited nearly Rs 1,000 crore in potential revenue while simultaneously boosting the unregulated market. “The audit observed that in spite of being aware of the fact that vends were required to be opened in non-conforming wards, the Department did not take timely action to work out modalities for the same before the tender process. Excise policy for the year 2021-22 and terms and conditions of licences were approved on May 24, 2021. Initial tender was floated on June 28, 2021 without taking comments from Delhi Development Authority (DDA) or Municipal Corporation of Delhi (MCD) and licences were allotted in August 2021 even before this issue was sorted out. Vends were scheduled to start operations from November 17, 2021. However, DDA vide its letter dated November 16, 2021 disallowed opening of liquor shops in non-conforming wards as it would be against the spirit of the Delhi Master Plan. The licencees approached the High Court which granted them exemption on December 9, 2021 from paying any licence fee in respect of mandatory vends in 67 non-conforming wards. This resulted in exemption of licence fee of Rs 114.50 crore per month,” the report read.
Contentious waivers, kickbacks
The CAG flagged a questionable decision taken by the government to grant a Rs 144 crore waiver in licence fees to zonal licencees between December 28, 2021, and January 27, 2022. The reason cited for this exemption was the impact of Covid-19 restrictions. However, the excise department itself had advised against granting such a waiver, arguing that the tender conditions explicitly placed commercial risks on the licencees, not the government. Despite this warning, the government went ahead with the fee waiver, further draining public funds without clear justification.
“..... The Excise and Finance Departments proposed that proportionate waiver/ reduction in licence fee due to Covid restrictions may not be considered as there is no provision in the tender document with regard to the reduction of licence fee in any such circumstances. This proposal was turned down by the minister in charge of the department and grant of waiver to each zonal licencee for the closed vends during the period from December 28, 2021 to January 27, 2022 was approved with the reasons that during the previous Covid lockdown period, the government had given the benefit of pro-rata fee waiver to restaurants,” the report read.
Another policy shift flagged by the CAG was the decision to move away from a per-bottle excise duty system to an advance licensing fee model. Previously, the government collected excise revenue on the actual volume of liquor sold. The 2021-22 policy, however, introduced a presumptive revenue model, where retailers paid a fixed licence fee, determined through bidding, rather than taxes based on sales. This change not only weakened government oversight but also created incentives for retailers to aggressively increase sales while paying a pre-determined fee. The CAG found that this structure led to increased liquor sales—64.82 crore bottles were sold between December 2021 and August 2022, compared to 58.19 crore bottles during the same period in 2018-19. However, this rise in sales did not translate into proportionate revenue growth, indicating a major policy miscalculation and graft.
A particularly glaring irregularity was the sudden increase in profit margins for wholesalers, which jumped from 5% under the old system to 12% under the new policy. The official reasoning was that higher margins were necessary to meet international standards and cover quality control costs.
However, CAG found that the mandated quality-testing laboratories were barely functional. Of the 62 warehouses that were supposed to have these labs, only 19 had operational testing facilities, and batch testing of liquor had not even begun. This increase in margins without a corresponding rise in compliance mechanisms effectively allowed wholesalers to pocket massive profits at the expense of state revenue. The Enforcement Directorate (ED) has flagged this margin hike as a possible conduit for kickbacks, further intensifying suspicions of corruption.
Proxy ownership & violations
Perhaps one of the most shocking revelation in the report is how retail licences were awarded to financially questionable entities. Of the 22 successful retail bidders, only 10 had reported an income of more than Rs 1 lakh in any of the three preceding financial years. And nine entities had reported zero income or losses in two of the last three years. Despite these red flags, these companies were awarded highly lucrative retail zones. In at least five cases, entities with negligible income history managed to acquire 10 retail zones, raising serious concerns about proxy ownership and the potential use of shell companies for illicit financial gains.
The CAG report also highlights a major procedural violation—several significant policy amendments were implemented without the mandatory approval of the Delhi Cabinet or consultation with the Lieutenant Governor (LG). This includes critical decisions such as waivers for licencees, relaxation of penalties for defaulters, and changes in pricing mechanisms. The deliberate bypassing of oversight structures points to a troubling lack of accountability in the policy’s execution.
Deviation from rules
The CAG also said test reports were not submitted by various brands. “Audit observed a number of instances where test reports were not compliant with BIS Specifications and the Excise Department issued licences despite major shortcomings. Important test reports of water quality, harmful ingredients, heavy metals, methyl alcohol, microbiological tests reports etc., were not submitted for various brands. Moreover, the test reports submitted by some of the licencees were not from National Accreditation Board for Testing and Calibration Laboratories (NABL) Accredited Lab as per the requirement of Food Safety and Standards Authority of India (FSSAI) Act. Deficient test certificates were also noticed during scrutiny of test checked reports. In respect of 51 per cent of the test checked reports, relating to Foreign Liquor, it was found that test reports furnished were older than one year/or no test report was provided/date not mentioned,” an excerpt from the report read.
The report said critical recommendations by an expert panel were ignored by the Group of Ministers (GoM) led by then deputy chief minister and AAP leader Manish Sisodia. The expert committee recommended government takeover of wholesale trade of liquor, through separate state beverage/wholesale corporations, owing to past instances of dual ownership (wholesale and retail) through related private entities and probable complicity of wholesalers in facilitating illegal liquor supply through duplicate barcodes.
“Even the GoM, in its report, accepted that many wholesalers were able to acquire retail licences through proxy ownership and make it possible to indulge in sale of non-duty paid liquor. Still the GoM recommended the issue of L-1 licences to private players only. The reason provided in the GoM report for not forming such Government-owned Wholesale Corporation was that a deep study and implementation of the same would require time and till such time L-1 licence should be granted to private players,” the report read. The Expert Committee had suggested retention of collection of excise duty on per bottle basis, while altering the pricing mechanism. “However, the GoM favoured advance collection of excise duty, in the form of licence fee, which was practically delinked to actual sale of liquor,” the CAG stated in its report.
Conclusion
The policy has now been scrapped, but the damage has already been done, with the state exchequer suffering a massive loss of Rs 2,002.68 crore. can utilise this provision.
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