The lovely tale of Liquor
during Lockdown and before
At every stage, addiction is driven by one of the most powerful, mysterious, and
vital forces of human existence. What drives addiction is longing —
a longing not just of brain, belly, or loins but finally of the heart.
Cornelius Platinga
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The use of alcohol in India for drinking purposes dates back to somewhere between 3000 and 2000 BC. An alcoholic beverage called Sura which was distilled from the rice was popular at that time in India for common men to unwind at the end of a stressful day. . Yet the first mention of Alcohol appears in Rig Veda (1700BC). It mentions intoxicants like soma and prahamana. Although the soma plant might not exist today, it was famous for delivering a euphoric high. It was also recorded in the Samhita, the medical compendium of Sushruta that he who drinks soma will not age and will be impervious to fire, poison, or weapon attack. The sweet juice of Soma was also said to help establish a connection with the gods. Such was the popularity of alcohol. Initially used for medicinal purposes, with time it evolved and became the beverage that brought life to social gatherings, and eventually consuming alcohol has become a habit for many.
With such a rich history of not just humans but also of the gods,
what is a worldwide pandemic to stop anybody from drinking?
. . .
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According to a report released by the World Health Organisation (WHO) in 2018, an average Indian drinks approximately 5.7 liters of alcohol every year. In a population of casual and excessive drinkers, with the shutters of liquor stores down, it must have been extremely difficult for “certain” people to survive lockdown. In the first two phases of lockdown, the desperation had quadrupled prices of alcohol in the Grey Market of India. Also, According to Google Trends, online searches for “how to make alcohol at home” peaked in India during the fourth week of March, which was the same when the lockdown was announced. As a consequence, a few people died drinking home-brewed liquor. People committed suicide due to alcohol withdrawal syndrome. Owing to the worsening situation and to reboot the economy, some states decided to open licensed liquor stores in the third phase of the COVID-19 Pandemic lockdown in India. This decision was the worst best decision the state governments could take. The kilometer-long queues in front of liquor stores were evidence that a pandemic can turn your life upside down yet your relationship with alcohol cannot move an inch.
The love in the hearts of those who are addicted was explicit. We might have seen addiction, we might have witnessed desperation but what happened in the month of May was madness, not just in terms of the way people pounced but also in the way the government earned. According to a report by Hindustan Times, on the first day of the third phase of Lockdown, the Indian state of Uttar Pradesh recorded a sale of over Rs 100 Crore from liquor. On the second day of the reopening of Liquor stores, Karnataka reported sales of 197 crores in a single day which was the largest ever. Eventually, the prices of Liquor were hiked to 100% to discourage people from drinking.
. . .
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There was a special corona fee that was imposed in Delhi by Chief Minister Arvind Kejriwal. A 70% corona fee was imposed in Delhi, yet the sales did not drop. The entire situation was a disaster for the law enforcement officers, social distancing was easily abandoned and a basic code of conduct was happily violated. Despite the chaos created, the states continued to collect revenues. Home delivery of alcohol was allowed in Maharashtra and e-tokens were sold in Delhi.
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Demand for liquor is inelastic which means that
the sale of alcohol is not much responsive to change in prices.
In general, since alcohol policy is a state subject in India, revenue from Liquor is a cash cow for state governments. In 2018 and 2019, four states collectively collected about 20,000 crores in taxes from the sale of liquor. As much as the state earns from the sale of Liquor it is undoubtedly, a threat to the Economy. Consumption of alcohol has dire health consequences. When a person consumes an alcoholic beverage, there is a rise in BAC because of which there is a gradual and progressive loss of driving ability because of an increase in reaction time, overconfidence, degraded muscle coordination, impaired concentration, and decreased auditory and visual acuity. This is known as drunken driving. (V. M. Anantha Eashwar, 2020) Drunken driving is the third biggest cause of road accidents and over speeding in India. Road accidents are not it; alcoholism causes sleep problems, heart, and liver issues. Also, it is not about an individual’s life, it ruins the lives of all people concerned.
Addiction also causes economic loss. In 2000, Vivek Benegal and his team assessed 113 patients admitted to a special de-addiction service for alcohol dependence. They found that
the average individual earned a mean of ₹1,661 but
spent ₹1,938 per month on alcohol, incurring high debt.
They also found that 95% did not work for about 14 days in a month. They concluded that it led to a loss of ₹13,823 per person per year in terms of foregone productivity. A more recent study, Health Impact and Economic Burden of Alcohol Consumption in India, led by Gaurav Jyani, concluded that alcohol-attributable deaths would lead to a loss of 258 million life-years between 2011 and 2050. The study placed the economic burden on the health system at $48.11 billion, and the societal burden (including health costs, productivity loss, and so on) at $1,867 billion. “This amounts to an average loss of 1.45% of the gross domestic product (GDP) per year to the Indian economy,” the study said. (Mint, 2020)
Setho ka Gaon
With each passing day, the ‘curtain of separation’ weighs down on the women of Afghanistan, paving the way for tyranny to thrive.
Arth
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THE GREEK ECONOMIC FIASCO
Since early 2010, the Eurozone has been facing a major debt crisis. The governments of several countries in the Eurozone have accumulated unsustainable levels of debt. Greece has been at the centre of this debt crisis with a debt-to-GDP ratio of 206.3% in 2020. The Greek economy is dealing with a precarious debt crisis that casts a shadow over its future and the future of the ambitious European project. Over the past years, the EU and IMF have provided bailouts worth more than 260 billion euros and come up with major policy responses to help Greece and prevent any spillovers that would threaten the equilibrium of the eurozone. Given the magnitude of the crisis, let's look at how Greece ended up here in the first place.
Greece is considered to be a developed country with an economy based on the service sector- mainly tourism and shipping. The country saw high economic growth from 1950 to 1980 which has been termed the Greek economic miracle. But the situation deteriorated dramatically over the next two decades due to several deeply entrenched features of the Greek economy that prevented sustained economic growth.
Till 1990, the Greek government controlled about 75% of all business assets in the country and imposed weighty and complex regulations over the private sector. This policy of protectionism didn’t allow private businesses to prosper and limited the economy’s competitiveness. Greece’s fiscal profligacy, i.e. wasteful and excessive expenditure, also caused its deficits and debt levels to explode. In a continuing bid to keep Greek voters happy the ruling parties lavished numerous liberal welfare policies and incurred excessive government expenditure which made Greece live way beyond its means.
Also, in line with its liberal welfare policies, Greece had imposed very less taxes on the public thus building pressure on government coffers. Additionally, Greece’s tax collection system was prone to corruption and granted exemptions to numerous professions and income brackets which led to tax evasion. In absence of tax revenue, Greece had to depend heavily on borrowing.
These flawed policies accustomed Greece to an unsustainable standard of living and created an over-leveraged economy with barely any savings. Soon, its expansionary fiscal policy, rather than strengthening the economy, led to soaring inflation rates, high fiscal and trade deficits, low growth rates, and exchange rate crises.
Then in 1992, the Treaty of Maastricht was signed which launched the European Monetary Union (EMU) paving the way for a single currency (euro) for EU member countries. For Greece, joining the European Monetary Union (EMU) in this dismal economic environment appeared to offer a glimmer of hope. The belief was that the monetary union backed by the European Central Bank would help to lower nominal interest rates, encourage private investment, dampen inflation and spur economic growth, leading to deficit and debt reduction.
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However, The Maastricht Treaty outlined a fiscal criteria to join the Eurozone - inflation below 1.5%, a budget deficit below 3%, and a debt-to-GDP ratio below 60%. Greece, with a budget deficit well over 3% and a debt level above 100% of the GDP, failed to meet this criterion. So it resorted to misreporting the size of its deficit (which was later revealed in 2004) and gained admission into the Eurozone in 2001. Greece’s acceptance into the Eurozone suddenly changed investors’ perceptions of Greece. Over-leveraged countries like Greece were being considered a safe place to invest solely on the belief that eventually, their economy would perform as good as their more prosperous European counterparts like Germany and France. This significantly lowered the interest rates for Greece.
The Greek government took advantage of greater access to cheap credit to pay for government spending and offset low tax revenue. The government also borrowed to pay for imports that were not offset by exports. Government budget and trade deficits ballooned during the 2000s and borrowed funds were not channelled into productive investments that would generate future growth, increase the competitiveness of the economy, and create new avenues for income-generation.
As long as borrowing costs remained relatively cheap and the Greek economy was still growing, Greece ignored its deep-seated fiscal problems. The Greek government’s reliance on borrowing left it vulnerable to shifts in investor confidence. If investors lost confidence in the Greek government’s ability to repay its debt, they would stop lending to the government or charge very high-interest rates. Lack of access to new funds would make it difficult for the government to borrow to repay existing debt, exposing the true nature of Greece’s financial strife.
The global financial crisis of 2008-2009 and the related economic downturn made these fears real. Greece’s structural problems started to become more and more evident as its reported public debt rose from 106% in 2006 to 126% of GDP in 2009. Additionally, in late 2009 Prime Minister George Papandreou, revealed that previous Greek governments had been under-reporting the budget deficit and revised the estimate of the budget deficit from 6.7% to 15.4% of GDP.
Greek bonds were being stamped with a "junk" grade and investors became increasingly nervous about the Greek government’s debt. This drove up Greece’s borrowing costs, exacerbated its debt levels, and caused Greece to veer towards default. Usually, in such a situation countries devalue their currency to attract exports and fuel growth but having adopted a common currency, whose value was tied more to the affluent economies of Germany and France, meant that Greece couldn’t devalue its currency. Thus, to avoid defaults Greece was in dire need of bailout financing and applying austerity measures- a set of economic policies, usually consisting of tax increases and spending cuts to reduce budget deficits.
European leaders, the IMF, and the ECB agreed that an uncontrolled, disorderly default on Greek debt would be extremely risky as it could spark a major sell-off of bonds of other Eurozone members with high debt levels and other Eurozone governments and banks would not be able to weather losses on those investments.
Thus in May 2010, Eurozone leaders and the IMF announced a three-year package of €110 billion in loans to Greece at market-based interest rates. In exchange, Greece committed to an austerity program aimed to reduce the government’s budget deficit by 11 percentage points through 2013. The program’s immediate objectives were a deep cut to public spending, a civil service hiring freeze, reducing pension payments (that absorbed 17.5% of GDP), tax increases and crack-down on tax evasion. But Greece’s debt pile was so big that this bailout package couldn’t help much. The austerity measures also, in fact, lowered the GDP and the unemployment rate rose to 25% in 2012. Confronted with the possibility of a disorderly default by Greece soon, European governments opted for a second bailout worth 130 billion euros.
This time Greece had to implement stricter austerity measures, privatise state-owned assets and private holders of government bonds also had to accept a 50% haircut to bring the debt-to-GDP ratio down to 120.5% from 160% by 2020. In 2014, Greece’s economy finally appeared to be recovering, as it grew 0.7%. But by this time the austerity measures had started to cause wide distress among the populace. High unemployment rates, lower wages and rising taxes led to social turmoil and nation-wide protests. In 2015, people elected the anti-austerity SYRIZA party to fight the austerity measures. The new Prime Minister announced a referendum on these measures and even threatened to leave the EU.
By this time the second bailout had expired and since Greece couldn’t avail of any further financial assistance, it missed its 1.6 billion euro payment to the IMF on June 30, 2015, making it the first developed country to default. The instability also caused a run on the banks. Several banks closed and restricted ATM withdrawals to 60 euros per day.In July 2015, the Prime Minister had to finally bend to the European creditors and approve new austerity measures to avail a third bailout program worth 86 billion euros. As the bailout program ended in 2018, Greece owed the EU and IMF around 290 billion euros. Under a deal with Eurozone states, Greece has to keep running a budget surplus of at least 2.2% of GDP until the year 2060 and until the debt was repaid, European creditors are to informally supervise adherence to existing austerity measures.
The country’s economic woes didn’t just disappear with the end of its rescue program. The success of the three consecutive bailout programs could be attributed to a more stable production base and the elimination of the government budget and current account deficit. Although Greece’s economy had started to grow in 2018, it was still 25% smaller than when the crisis started and had accumulated debt of about 180% of GDP. Similarly, the unemployment rate declined to 20% but was still the highest in the EU. The extensive wage cuts left workers with limited spending power and forced them to migrate elsewhere for better pay.
Thus, the bailout and subsequent reforms laid the foundation for a sustainable recovery but recovery was not a sudden event, it is an ongoing process. Greece's economy has rebounded since the crisis era. The unemployment rate is now at 12.5%. Its GDP grew by 8.3% in 2021 and is expected to grow by 4% in 2022. Greece has also paid off its debt owed to the IMF, two years ahead of schedule.
The bailout is over, but the shackles and the asphyxiation of austerity measures are still on. Inflation stands at 11.5%, making the cost of living almost unbearable for Greeks. Greek population has no other option but to adjust to these austerity measures and pay off the debt as soon as possible so that things get back to normal. Greece’s crisis shows that there is no easy way out in a financial crisis but a compromise forged in the battle is better than an outright collapse.
Vansh Gupta
Senior Editor, Editorial Board
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