Should governments sell liquor and run lotteries?

Source– The post is based on the article “Should governments sell liquor and run lotteries?” published in The Hindu on 28th October 2022.

Syllabus: GS3- Economy GS2- Government policies and interventions

Relevance– Government intervention in market

News- The article explains the government involvement in selling of sin goods.

What are different viewpoints about the role of states in the sale of sin goods?

Government should not be in sin business. The role of the state is to provide public goods. The consumption of sin goods is instead linked with ‘public bad’. The negative effects of these sin goods disproportionately impact the weaker sections of society.

Role of the state needs to be considered not just from the supply side, but from the demand side as well. The rising demand for alcohol is a public health concern.

The state can play a positive role in regulating the sale and consumption of sin goods. An important instrument is taxes. Studies have shown that raising the tax rates on sin goods will discourage people from consuming them. The taxes collected can be used for development programmes.

What is the reason behind the state government’s involvement in selling sin goods?

State’s involvement in sin goods has been motivated by the desire to raise revenue. Revenue-maximising objective takes precedence over public interest.

But this situation must be viewed against the larger context of Centre-State financial resources and responsibilities. In 2019-20, tax collected by states accounted for only 43.5% of the total revenues of all States and Union Territories combined.

State governments are heavily dependent on the financial devolutions from the Centre. They also  have a greater responsibility for expenditure on social sectors. With the introduction of GST, there are only a limited number of goods and services, mainly alcohol and petroleum products on which the State governments can independently set tax rates.

What are the impacts of state monopoly in sin goods?

When there is government monopoly and the intention is to restrict supply, it leads to increase in Prices. Quality products are also discouraged.

When liquor is privatised prices come down . But they don’t not come down by much because price also depends on other factors such as indirect controls like licensing policies and taxes and consumer demand.

What is the role of special interest groups in the case of sin goods?

Role of special interest groups needs to be considered. Legislators, politicians, bureaucrats, regulators, experts in the enforcement side each of them has their own interests. Like in the case of toddy, you could have special interest groups coming together in a way that goes against true public interest.

The concerns of all stakeholders must be looked into while formulating policy interventions to restrict the consumption of sin goods. Consider the example of the tobacco industry. In 2017-18, it provided employment to 3.4 million Indians, 3 million of whom were women. We should provide alternative livelihood opportunities for those engaged in tobacco farming and processing along with measures to limit tobacco consumption.

What are the impacts of the government control over sin goods on poor people?

There are limitations to using taxes or high prices as the only instrument to restrict the consumption of sin goods. If a person addicted to alcohol is unable to let go of that habit despite

high prices, his household will suffer.

Sin tax may have an income effect on poors. They may shift to consumption of illicit liquor. So, it becomes important to deploy other instruments like public campaigns.

Is alcohol consumption becoming more socially acceptable?

There is an increase in consumption among women, and the middle and upper-middle classes. The rising aspiration of the middle class is behind the rise in alcohol consumption.

Cultural and religious norms are no longer as effective as they may have been earlier.