The Unseen Effects of Banning Alcohol Along Highways

Bastiat

Sometime back the Supreme Court prohibited the sale of liquor within 500 metres of state highways and national highways. As it said in its second judgement on the issue: “India has a high rate of road accidents and fatal road accidents – one of the advisories states that it is the highest in the world with an accident occurring every four minutes.”

It further pointed out: “There is a high incidence of road accidents due to driving under the influence of alcohol… The existence of liquor vends on national highways is in the considered view of…expert authorities with domain knowledge—a cause for road accidents on national highways.”

The point being that people get drunk at shops and restaurants around highways, drive under the influence of alcohol and then cause accidents.

It is important to try and understand why people in India drink in shops and restaurants around highways. It’s not considered a good thing in India to be seen drinking with friends, colleagues and acquaintances. Hence, people like to drink outside the city near highways, so that they don’t get seen by the people whom they happen to know.

The question is will this banning of the sale of alcohol lead to a fewer accidents. Before I try and answer this question I will have to take a brief detour in order to introduce a 19th century French economist called Frédéric Bastiat.

In an essay titled That Which is Seen, and That Which is Not Seen, he wrote: “In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously—it is seen. The other unfold in succession—they are not seen: it is well for us if they are foreseen.”

In the case of the Supreme Court’s decision to ban alcohol along highways what is seen is that once shops and restaurants selling alcohol shutdown, it would lead to a major loss of taxes for the state governments. State governments earn taxes on the manufacture and sales of alcohol. If shops shutdown, then these earnings will fall.

This is something that the Supreme Court judgement has foreseen: “The states are free to realise revenues from liquor licences in the overwhelmingly large swathe of territories that lie outside the national and state highways and the buffer distance of 500 metres.”

Hence, the Supreme Court does not think that its decision would lead to lower taxes because the government could offer more licenses away from the highway. This is something that the government will eventually do. Meanwhile, what state governments have started to do in order to get around the decision is to denotify highways and have turned them into local, municipal or district roads, so that the sale of alcohol can continue. In many cases this is justified because highways are a part of the city and not outside it.

This has been done in order to ensure that the taxes from alcohol keep coming in. This is the unseen effect which Bastiat talked about and the Supreme Court decision did not foresee. In fact, the government of Maharashtra recently hiked the drought cess on petrol from Rs 6 to Rs 9, even when there is no drought in sight. This has been done to make up for the loss of revenue from shutting down of alcohol shops around highways.

Another unseen effect lies in the fact that those who used to go out of the city to drink in shops and restaurants along the highway, will now have to drink in the city. And if they drive after drinking, accidents will continue to happen. Given that they may not have to drive as long as they had to do in the past, the rate might fall.

Hence, the basic issue in this case is not drinking, but driving after drinking. And that cannot be solved by banning alcohol along highways. It can only be solved by better policing, in the city as well as on the highways.

 

The column originally appeared in the Bangalore Mirror on April 26, 2017

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About vivekkaul
Vivek Kaul is a writer who has worked at senior positions with the Daily News and Analysis(DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System , the latest book in the trilogy has just been published. The first two books in the trilogy were published in November 2013 and July 2014 respectively. Both the books were bestsellers on Amazon.com and Amazon.in. Currently he works as an economic commentator and writes regular columns for www.firstpost.com. He is also the India editor of The Daily Reckoning newsletter published by www.equitymaster.com. His writing has appeared across various other publications in India. These include The Times of India, Business Standard,Business Today, Business World, The Hindu, The Hindu Business Line, Indian Management, The Asian Age, Deccan Chronicle, Forbes India, Mutual Fund Insight, The Free Press Journal, Quartz.com, DailyO.in, Business World, Huffington Post and Wealth Insight. In the past he has also been a regular columnist for www.rediff.com. He has lectured at IIM Bangalore, IIM Indore, TA PAI Institute of Management and the Alliance University (Bangalore). He has also taught a course titled Indian Economy to the PGPMX batch of IIM Indore. His areas of interest are the intersection between politics and economics, the international financial crisis, personal finance, marketing and branding, and anything to do with cinema and music. He can be reached at vivek.kaul@gmail.com

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