Alcohol regulation and the revenue trap

An optimal state policy must go beyond a revenue-hungry, punitive regulatory regime

- AARTHIKAM CHINTANAM

To usher in 2026, alcohol consumption remained a centre piece of festivities, with an estimated consumption of 12 to 15 million cases in India. In parallel, it took a near doubling of police deployment on the roads to bring about a 37 per cent drop in drunk-driving cases in Mumbai alone that night.

Governance of alcohol — its manufacture, distribution, sale, and taxation — remains one of the most fraught areas of public policy, sitting at the intersection of public health, social morality, and fiscal necessity. For an Indian state, the challenge is perpetual and profound: How does one responsibly manage a commodity that is simultaneously a major source of revenue and causes significant social harm?

The necessity for state intervention in the alcohol market begins with basic economics. Alcohol consumption is a classic case of negative externalities. The costs associated with consumption — public disorder, traffic accidents, domestic abuse, loss of productivity, and strain on public healthcare systems — are borne not just by the consumer, but by society at large. The price paid by the consumer in the market, therefore, does not reflect the true social cost of the good. Left entirely to the market, there will inevitably be over-consumption, leading to suboptimal social outcomes.

This foundational market failure calls for state intervention to internalise these social costs and mitigate the negative externalities. However, this imperative must be tempered by two considerations.

First, alcohol is not in the category of goods like heroin that call for complete prohibition. Its consumption, in moderation, is a matter of personal choice in most societies. Hence, the public policy goal should be not to ban, but to secure informed and responsible consumption.