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.
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25 Years to Baht’s Freefall: Lessons from 1997’s Financial Crisis
The Thai economy is an export driven economy, capitalizing primarily on its thriving tourism industry. Exports accounted for nearly 60% of Thailand’s GDP in 2019. It is needless to mention that Covid-19 Pandemic was responsible for slowing down their economy due to a halt in travel and tourism related activities.
In July this year, Thailand’s currency fell to its lowest in the past 5 years. Thai Baht’s value fell to 35.66 to the US Dollar. This led to many speculators wondering if the crash was reminiscent of the extreme crash that Baht faced in 1997, that led to Thailand unpegging its currency from the U.S. Dollar. But why was it floated in 1997? Was Thailand’s economic rise in the 1990s and subsequent downfall, a cause of the Asian Financial Crisis that doomed the economies of several Asian Countries?
Story of Economic Prosperity
Thailand’s Economy in the 1990s passed the checklist for a stable, healthy economy on several parameters. From Financial Market Deregulation to Capital Account Liberalization, the Thai Government undertook economic policies that promoted investors from abroad in setting up Investment Portfolios in Thailand.
The Thai government managed to keep a low rate of inflation between 3.65% to 5%, a high savings rate at around 33.5% of their GDP and fiscal surpluses. All this turned Bangkok into an ideal center for investments, akin to its counterpart Hong Kong. Owing to this, their banking sector expanded very rapidly and stocks skyrocketed. This could have been a successful model, had these funds been invested sustainably.
What needs to be understood is that Bangkok at that time had recently emerged as an Investment Intermediary and Hub. And a lot of these investments were being further reinvested not by the formal Banking Institutions of the country but by Private Financial Institutions. These Institutions were not having very sound investing practices.
The Downward Spiral
A lot of the investments received from abroad were invested in the Real Estate Sector. This led to the stagnation of funds without apparent returns on investment. Not only that but several bad loans were made to Non-Performing Assets (NPAs) and companies. On paper, these companies showed profits but the reality was starkly different. One of the many reasons for this was that Thailand’s Economy was indulging in forex through financial institutions that did not come under the ambit of the government backed banking sector. Thus they made risqué investments and deposits. Another imprudent practice was that they lent to foreigners in dollar denomination and thus had to pay them in dollars as well.
Some of the reasons for the fall in the economy were also external such as China’s rise in the export sector, fall of the demand for semiconductors: the primary export component of Thailand and an appreciation in the value of Dollars due to rise in interest rates and a revision of Fed Policies in the US.
The investors saw a decline of the real estate market, rise in non-performing loans and a balance sheet crisis, and hence started selling domestic assets to claim their foreign assets. Had the Thai investors and financial mediaries been prudent with their lending practices, this issue would not have arisen.
The crisis that started in the Thai Banking sector swept through the major economies of Malaysia, Singapore, Indonesia, Philippines, Hong Kong and South Korea. These Tiger Economies of East Asia that had seen tremendous growth during the period of 1990-96, were faced with stock markets and currency crashes from 1997 onwards due to a contagion effect.
Recovery and Aftermath
The Thai Government introduced several monetary and fiscal policy reforms to bring the economy to pre-crisis levels. There was a restructuring of the distressed financial institutions. This involved the closure of 56 bankrupt finance companies. The government enacted budget cuts to free up resources to support improvement in the current account (exports less imports). The role of the private sector was also deepened.
The IMF's Executive Eoard granted a financial support of SDR 2.9 Billion or about USD 4 Billion for a 34 month period. There was both a bilateral and multilateral assistance accounting to USD 17.2 Billion. But due to improved economic conditions, Thailand did not utilize the entirety of the fund and used only USD 14.1 Billion. The road to recovery was a slow one. Thailand’s economy reached pre-crisis levels in late 1998.
Lessons Learnt
The blunders during this crisis laid the foundation for future learnings. It was understood that maintaining strong macroeconomic fundamentals are prerequisite for economic and financial resilience. Deepening and broadening financial systems is equally important. And greater regional cooperation is required to reinforce regional financial safety nets for sound financial systems. Though so many years have passed, Asia needs to stay vigilant against a backdrop of financial imbalances to ensure a sound economy.
Ananya Dubey
Senior Editor, Editorial Board
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