How Delhi’s flagship excise policy put smaller players in low spirits

Among the biggest fallouts of the Delhi government’s excise policy, which was adopted in November last year, has been the crippling of smaller players who had secured licences at prices ranging from Rs 225 crore to Rs 250 crore.

Most of these players have now refused to renew their licence while sustaining significant losses. The Delhi government’s Cabinet note, which was passed Sunday and sent to the L-G for approval, also talks about the impact its flagship policy has had on the sector.

By Tuesday, vendors from 15 out of 32 zones that Delhi has been divided into had surrendered their licences, finding it too hard to compete on the terms set by the government. As per the policy, vendors had to pay Rs 1 crore per day as excise duty, irrespective of the stock they bought.

“The bigger vendors can withstand losses even as they continue to give big discounts. Small companies like ours do not have deep pockets and cannot sustain the pressure hoping for a better payout in future,” said a vendor who gave up his licence last week.

“The bigger players operate not just in Delhi but also in other states. They can offset their costs to wait out the tumultuous period, they have deep pockets. We don’t. While on paper the policy looked good to us, the fact that there was no limit to discounts given resulted in predatory practices by the bigger fish,” he explained.

The Cabinet note too points towards this issue, while highlighting the loss it causes to the exchequer as the sale of alcohol did not suffer during this period. When the Cabinet note was prepared, nine vendors had opted out of extension. Since then, more have followed suit.

“Nine zonal retail licensees have not availed extension during the extension period from April, 2022 and three more zonal retail licensees have conveyed their intent to not avail extension beyond July, 2022. Out of the 14 wholesale licensees, 4 wholesale licence-holders have so far opted to discontinue their licences. The revenue decline on account of surrendered zones is estimated to be around Rs 193.95 crore per month. It is pertinent to note that while the exchequer is losing significant revenue due to vacation of zones, there has been no decline in sales of liquor and the slack has only been picked up by the remaining licence-holders, which amounts to a windfall gain to them. The data from the Excise Department shows that the sale of liquor in the first quarter of current fiscal 2022-23 has increased by 59.46% in case of whisky to 87.25% in case of wine as compared to the corresponding period of financial year 2019-20 (a normal year) but the same could not be captured as an enhancement to the government revenue. Further, since there is no clarity about the continuation of Excise Policy 2021-22, therefore, there may also be a tendency for some more L7Z licence-holders to surrender their licences which may lead to further reduction in revenue,” it said.

At present, when private vendors have been given an extension of one month to operate, only 342 shops will remain open in Delhi as opposed to the 849 that were envisioned.

Shutting of shops, as per the note, is leading to a large number of unserved areas and defeating one of the major objectives of Excise Policy, 2021-22. This naturally amounts to windfall gain for the existing licence-holders and leading to the loss of revenue to the exchequer.

With the office of the L-G also asking the CBI to look into allegations of corruption in the implementation of the Excise Policy and the Delhi Police looking into alleged wrongdoing when changed were made to the policy, allegedly by Deputy Chief Minister Manish Sisodia, issues of smaller players bowing out and revenue dipping significantly were also mentioned in the Cabinet note.

“It is observed that the reduction in number of vends to only 468 is affecting the government revenue adversely and the existing retail vends are enjoying windfall gain at the cost of public exchequer, on various accounts, including on account of non-opening/closure of retail vends and huge increase of sale in liquor. It is strongly emphasized that public interest is paramount and there should not be any loss to the government exchequer at any point of time and private undertaking should not enjoy windfall gains at the cost of public exchequer,” the note quotes Sisodia.

Why the New Excise Policy was brought in (as per the government):

1. Increase government revenue, check sale of spurious liquor and smuggling and enhance customer experience

2. To not allow formation of monopolies or cartels.

3. Promote consumer choice and ensure availability of popular as well as niche brands

4. Check smuggling and bootlegging by ensuring adequate spread of retail vends and remove price differential with the neighbouring states so that there is no incentive for smuggling

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