Excise reforms that look beyond revenue

For decades, Karnataka has treated excise revenue as a dependable cash cow, with targets raised year after year and scant regard for the social consequences of alcohol consumption. That orthodoxy now appears to be shifting.

The Siddaramaiah government’s draft Excise Reforms Policy 2026 is the first serious attempt to acknowledge, quantify, and respond to the wider costs of drinking. That, in itself, is a welcome departure. The government’s own estimates are sobering. The excise target of Rs 45,000 crore for 2026-2027 is offset by social costs of roughly Rs 51,000 crore — driven by road accidents, liver disease, domestic violence, and loss of household income.

In effect, the State runs a deficit once these negative externalities are factored in. The problem is not merely fiscal. Karnataka’s per capita consumption, at 9.1 litres, significantly exceeds the national average, with heavy drinkers imposing disproportionate harm on families and communities, and women and children bearing the brunt.

The proposed reforms reflect a more nuanced approach. Shifting to an alcohol-by-volume (ABV) taxation model — widely regarded as a global best practice — could help nudge consumers away from high-strength spirits. Price deregulation and rationalised tax slabs could introduce greater transparency and competition.

The decision to earmark a portion of excise revenue for de-addiction, road safety, and domestic violence prevention is particularly important, signalling the State’s willingness to reinvest in mitigating the damage. The stated goal of reducing consumption by 8-9 per cent over six years is modest but realistic. Yet, the transition carries risks. Any sharp increase in prices, especially of high-ABV liquor, will disproportionately affect lower-income consumers, who are also the most vulnerable to addiction.

It is naïve to assume that these consumers will simply migrate to safer, costlier alternatives. Experience suggests they may instead turn to illicit liquor, smuggling networks, or even more harmful substances. Without robust enforcement, the reform could inadvertently expand the very black markets it seeks to curb.

This makes the proposed technological safeguards — QR-based tracking and geo-fenced transport — critical. Equally vital is the health department’s expanded role in prevention and rehabilitation.

Taxation alone cannot suffice; credible public health interventions and sustained awareness campaigns must complement policy. The government’s decision to open the draft policy for public consultation is, therefore, timely. It allows for course correction before implementation and lends legitimacy to what will be a sensitive policy shift.

Karnataka is right to recognise that excise cannot remain a one-dimensional revenue exercise. The challenge now is to ensure that reform is both economically sound and socially responsible.