Bengal govt eyes liquor supply biz

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The cash-strapped West Bengal government is making every effort possible to pull up its revenue in order to finance expenses, the latest being the move to take over the liquor distribution business from private players. This move could result in Rs 1,200 crore bank loans turning into non-performing assets (NPAs).

The 109-odd Indian made foreign liquor (IMFL) distributors in the state say that Rs 700 crore is already in circulation in the market as credit to retailers which was sourced from bank credit. Another Rs 500 crore has been invested to set up distribution infrastructure, again financed througth bank loans.

“There is a possibility that the money will turn into bad debt and we (IMFL distributors) will be in the bad books of the banks as we’ll not be able to repay the loans,” said Vikram Soni, vice-president of West Bengal Foreign Liquor Manufacturers Wholesalers and Bonders Association.

According to Soni, the government needs to allow atleast a full financial year so that the distributors can recover their dues from the retailers and liquidate fixed assets to repay the banks. However, the state government is firm on its stand to roll out the new distribution venture from this April itself.

As on September 30, 2016, the total bank loans that have gone bad in Bengal stood at Rs 55,453.37 crore, of which, the micro, small and medium enterprises (MSME) segment comprised 17.67 per cent. The liquor distribution system, which employs 17,000 people in the state, falls under the MSME category. IMFL wholesalers are of the opinion that the prevalent 18 per cent growth (in revenue) in liquor distribution will slow down to 10 per cent which will translate into a Rs 500 crore dip in the state’s revenue collection from this trade. In the last financial year, the wholesale IMFL market in West Bengal stood at Rs 8,000 crore.

 

The association claimed the excise collection from the trade stood at Rs 4,000 crore in the past financial year, and has been growing at an average rate of 18 per cent per annum for the five years prior to that. “In case the government decides to implement the plan, the excise collection will come down,” Soni added. The state government has established the West Bengal State Beverages Corporation, a company which would buy both IMFL and country liquor from producers and sell them directly to retailers. The government has directed its district magistrates to scout for warehouses which can store the liquor bottles.

Wholesalers say the move will result in an additional infusion of Rs 400 crore by the government to set up necessary infrastructure, with the annual return on investment estimated at Rs 230 crore. “Net return after five-six years would not be more than Rs 50-60 crore for the government,” an IMFL distributor from Asansol said. However, a state government official says the state will be able to earn about Rs 500-800 crore through distribution (excluding excise duty and sales tax).

According to an another official, the liquor wholesaling trade in the state has traditionally been in the hands of private operators. They procure alcoholic drinks from manufacturer’s agent and sell to the retailers. 

“The government seeks to change it into a 3-tier structure whereby it will buy directly from the producers and bill it to the retailers”, the official said.

In November last year, the state government had already upped taxes on liquor to raise more revenue.

Historically, back in 1974, the then Left Front led state government had tried its luck in the liquor business but had to taste failure in the project. Eastern Distilleries and Chemicals Ltd, a state-run country liquor manufacturer closed down in December last year after sustaining losses for decades.

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