The Kejriwal government’s U-turn on its liquor policy and the consequent chaos in the national capital result from fundamental flaws in the New Excise Policy 2021–22. The state government failed to observe the most basic policy-making criteria: A policy should provide a level playing field for all the participants. Since its launch, retailers have protested and accused the government of favouring the wholesalers. The new policy allowed wholesalers to offer discounts and rebates to retailers of their choice. The previous policy prohibited it. The old policy offered rebates and discounts uniformly to all the retailers. The retailers who received discounts under the new policy passed it on to buyers. The discounts they received were so huge that they even managed to offer buy-one-get-one-free schemes. Other retailers matched the offer for a while but could not keep up.
As a result, many retailers started surrendering their licenses. Instead of retendering the surrendered zones, the state government allowed existing retailers to mop up windfall profits as buyers from closed zones flocked to the remaining ones. So, while liquor sales remained unaffected, government revenue collapsed due to the non-receipt of license fees from the closed vends. The government’s excise revenue after the implementation of the new policy has come down to about Rs 3,700 crore from Rs 6,300 crore in the previous year. The government had claimed that the new policy would yield Rs 9,000 crore.
The new policy brought another big change in excise collection. It changed from a per bottle excise duty-based policy to a lump-sum license fee regime. The new policy introduced a high license fee of about Rs 300 crore per annum per zone and negligible excise duty of one per cent of the sale amount. As a result, when the retailers surrendered their licenses, the government suffered a loss of thousands of crores of rupees on account of license fees. But it earned very little from the vendors who were still operating and were selling twice as much. This is because the government got a measly one per cent excise duty from every extra bottle they sold. This excise policy failed to deliver a high to the government or the retailers.