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MOSL: ECOSCOPE-Banning alcohol unlikely to meaningfully hurt state finances-States budgeted to collect INR833b

​ECOSCOPE: Banning alcohol unlikely to meaningfully hurt state finances; States budgeted to collect INR833b (4.2% of total receipts) from alcohol in FY18

• Recently, Madhya Pradesh (MP) became the fourth state to ban alcohol production, following Bihar (BH), Tamil Nadu (TN) and Kerala (KL) in the past two years. Notably, excise collected from alcohol accounts for ~0.5% of total receipts for MP. A ban on alcohol production is, therefore, unlikely to meaningfully hurt its finances.
  
• Interestingly, while BH lost about INR30b due to alcohol ban last year, a partial ban in TN and KL does not seem to have hurt their excise tax collection, reflecting the ineffectiveness of such measures in these states. (Click here for our analysis on the impact of alcohol ban on listed alcoholic beverage companies).
  
• On an aggregate basis, we find that 17 states (covered in our detailed report on 2017-18 state budgets) have budgeted to collect INR833b from alcohol in FY18, up 14% as against 10% growth over the past three years. The share of alcohol taxes in total receipts has fallen consistently from a peak of 6.3% in FY13 to 4.2% in FY17, and is budgeted to remain so in FY18 also.
  
• Our analysis reveals that Karnataka (KA) is the most dependent state on alcohol. In FY18, it has budgeted to collect ~12% of its total receipts through alcohol.