Well, I have been quite silent in the blogspace for a couple of months now and yes, I do regret it. I haven’t been able to make time (sometimes not been driven enough!) to post something useful here. So, I finally decided to do something about it.
At the fag end of Term 1, our economics professor Amit Bubna had initiated a contest called the “Class Economist” to inspire lazy asses like me to think something interesting and the topic was “Fighting Alcoholism in Today’s Society”. The restriction was that it needed to be a one page write-up only. The incentive was that the top 20 papers of the batch will receive something nice from him. And, surprise, surprise, I was one of the folks whose paper made it to the top 20! So, here’s the article that I entered into the contest. Looking forward to comments / criticisms…
“Policy Proposed: Three pronged policy 1. Introduce steep taxes to be charged on per-liter-per-bottle of alcohol produced at the branded / large-scale manufacture’s plant while exempting taxes for industrial and pharmaceutical production. The taxes shall be in the form of different slabs depending on varying ranges of the maximum retail price, and, shall be levied on the bottle on a per liter basis; the higher the price, the higher the tax. 2. Recognize & legalize the cottage industry and small-scale production of liquor as valid business and provide guidance for improvement in manufacturing techniques including but not limited to subsidy and tax rebate for following norms and certifications. Introduce effective licensing and audit of alcohol manufacturers. 3. Educate children and teenagers who form part of the consumer target segment towards the health issues and economic losses arising out of acute as well as chronic alcohol consumption – make it “uncool”.
Policy Explanation & Implications: The outcome of the India regional survey[1] illustrates that a larger percentage of youth, predominantly males, are taking to alcohol based on the Last Year Abstainers[1] and Youth drinking in Andhra Pradesh(Last Year Abstainers)[1] figures. Also from the WHO global status report[2] it can be inferred that youth taking up alcohol consumption at a young age finally leads to chronic consumption related economic and health problems. As India is primarily a tropical climate country with very little benefit associated with regular drinking, the long-term strategy is to wean youth away from alcohol. The short-term strategy will be to impose high taxes on alcohol to bring down drastically the consumption by leveraging on the price elasticity, but pumping back the revenue earned into National Rural Employment Guarantee Scheme (NREGS) and medical research.
a) Short-Run Policy& Impact: The short run impact depends on two factors. Firstly, buyers of branded alcohol are usually in the high-income group and a steep rise in the taxes (preferably in the form of slabs) would lead to a reduced demand of alcohol. Given that the Heavy Episodic Drinkers [1] is sufficiently small, this would not lead to any adverse social impact unlike as argued by critics [3] but would taper the demand largely. This would also address the acute drinking economic losses of drink & drive fatalities, accidental injuries, etc. The advantage of levying a tax at the production level instead of the sales level is to provide a disincentive to the manufacturer to market alcohol as a loss leader product. The manufacture’s incentive to flood the market with value packs [3] would be eliminated due to tax at the production level itself followed by a tax at the sale-level. A part of this revenue needs to be directed to the NREGS to provide incentives to rural population to be engaged in productive work and move away from alcohol addiction as a refuge for poverty. Secondly, by legalizing & licensing the small scale and cottage liquor production, and by providing guidance in distillation practices, we would make sure that a major source of illicit liquor deaths and disabilities are reduced. In addition, by encouraging certifications in production techniques in the form of tax rebates on sales, an incentive can be placed for these producers to improve the facility, which would drive up costs! This increased cost would need to be passed onto the rural customer who has extremely high price elasticity and thereby demand would start falling. As a result, the illicit liquor problem as well as the demand side problem can be tackled with this second strategy.
b) Long-Run Policy & Impact: Extend the ban on alcohol advertising to include surrogate advertising. Effort needs to be initiated to educate children at the school level about the addictive nature of alcohol and the eventual economic, health and monetary losses. Making it “uncool” to teenagers and young adults through public service adverts in popular television channels would be a right step in stemming the next “alcoholics anonymous” wave of the population. Also, as a direct result of increased tax collections, a substantial amount can be invested into healthcare R&D which can address long pending medical research in substance abuse. Given that a majority of the rural population’s addiction is a direct result of abject poverty, additional funding for well-intended schemes such as NREGS would alleviate the attraction to illicit liquor.
The three pronged strategy proposed above would go a long way in tackling the under estimated dangers of alcohol abuse in terms of economic losses to the individual, the family and the society as a whole.
References: [1] WHO Global Status Report on Alcohol 2004
[2] WHO Global Status Report on Alcohol 2004 Country Profiles South East Asia Region – India
[3] “Government's top doctor recommends price hike for alcohol” – Sunday Telegraph, UK, March 15, 2009
So what do you think…?
View Nikhil's Profile
Posts
