Moralistic bans can really hurt the economy: Business Line, April 13, 2017

Tobacco, alcohol, meat, romance — the morality meter’s ticking to cut these industries down to size

The series of bans issued in the last few months has affected the lives and livelihood of several people. These measures have strong religious and moralistic undertones that are defined by the elite. In India often these over-sensitive elites raise issues which are taken up with greater alacrity by the legislative and judicial systems compared to more serious issues such as poverty, crime and unemployment.

The fact that there is judicial sanction for steps against smoking and drinking implies that procedures of the law and the Constitution have been adhered to, which makes it a more or less permanent development. In fact, it may be expected that there will be further consolidation of these bans — the liquor ban could move into cities from highways as accidents happen on all roads.

Economic sins

The tobacco and liquor industries have been particularly affected over the years. The tobacco industry involves as many as 50 million farmers with the valuation being in the region of ₹75,000-100,000 crore as it also involves informal products that are marketed. The alcohol industry, more a lifestyle product, is valued at around ₹250,000 crore and again spreads across the organised and unorganised segments.

Both the partial bans, which restrict the sale and use of the product based on location, are premised on the proliferation of negative externalities that affects the general public in the form of being either a health hazard or a public threat.

Smoking and drinking are considered to be economic sins, and have been under the radar for a long time. The emphasis was on personal health with the only intervention being the provision of statutory health warnings. However, now things will be different.

Besides those who work in these industries, there would be a secondary impact on the hospitality business too as both are linked with users who either eat out or at home. As the logical extension, these partial bans will lead to producers moving away from such activity. The decline of these industries will have repercussions on the supply chain as well as the hospitality and entertainment business which get linked to the user end. This excludes revenue loss for the government which is substantial as sin tax is probably one of the few economic impositions which confronts an inelastic demand curve.

The third serious ban, which is not a sin but a habit which offends the moral and religious sensibilities of certain sections of society, relates to cow slaughter and the associated regulation on selling meat.

Here too, the economic implications are interesting. The meat industry is valued at ₹1,75,000-₹1,80,000 crore with most of the activity in the unorganised sector. It also has a large export market which could go up to $5 billion, with India being the largest exporter of buffalo meat. The decision to come down heavily on any illegal activity in this sector.

At a more micro level, the idea of moral policing, which has caught up of late, also has economic repercussions. Pushing youthful romances indoors, besides affecting individual choice, impacts the restaurant, hotel, and florist business as with every population of 1 lakh couples not indulging in ₹100 of expenditure per outing, pushes back the system by ₹1 crore!

Loss of revenue

One is not sure if implementing these measures would improve the moral fabric of the nation, but it does displace a large populace and leads to loss of revenue, both for the government and the entrepreneur. In fact, it has been argued that the government has not fully banned the use of tobacco because there is a farmers’ lobby to protect which simultaneously yields high revenue — almost ₹35,000 crore. While the government could look for alternatives in terms of funding the deficits, providing employment would be challenging. Curiously, if tobacco was considered a ‘bad good’, it could never have been allowed as an industry.

Hence, every ban has a serious economic effect. Banning dance bars in Maharashtra was intended to protect the moral sensibilities of male youth. With around 1,500 of these touch-points being affected by the ban involving almost 100,000 workers, sales of around ₹5,000-₹8,000 crore per annum was involved.

Rehabilitation has rarely been taken on by the government; the consequence has been unemployment and destitution. In case of tobacco and meat, the issue is even more pernicious as there are workers at the ground level who directly work on the crop or are involved in the meat supply chain.

The other fallout on economic activity is the migration to underground premises which often results when ‘bad habits’ are hindered. A good example of an activity banned in most countries is prostitution. But the business is widely prevalent: India is a leading nation with the industry valued at around ₹55,000 crore — it comes after China, Spain, Japan, Germany, the US and South Korea. Liquor and tobacco have easy routes into the market through illegal channels.

The effort to create a moral society with strong religious proclivities is laudable. But for balanced development to take place it is essential that all the displaced people are provided alternative jobs through budgetary allocations; the unemployed populace can make our much-touted demographic dividend a liability. For industries, it is time to introspect as the regulatory risk for their own sector will always be an uncertainty.