Karnataka’s bizarre liquor license policy

Karnataka has a rather weird liquor license policy. Some twenty years ago, back when S Bangarappa was the chief minister (if I’m not wrong) the state decided to freeze the number of bars. “Growing alcoholism” was the ostensible reason. Since then, if someone has to open a bar, the license has to be purchased from an existing bar owner who will then shut down his bar. Thus, the number of bars in the state (whose population has increased manifold since) has remained constant.

This is not the only funny aspect of liquor regulation in Karnataka.  Till recently, there was also the rather bizarre requirement that each bar sell a minimum “quota” of liquor each month. If the bar failed to do so, it had to pay “short lifting” fines. While this regulation (minimum “lifting” by bars) went much before the time when number of licenses was capped, the two can be seen to be related. When the number of licenses is capped, the state needs to ensure that it gets a certain fixed revenue out of excise licenses and sales. Fixing a minimum sale quantity ensures that licenses are not “wasted” by bars with low sales, and in case they are, the government doesn’t lose out on such sales.

A possible reason that this rather bizarre regulation on minimum sales was lifted is due to it becoming moot thanks to competition. When the number of liquor licenses is limited, the price increases, and thus bars which are selling lower amounts of liquor find it more profitable to cash out on their licenses than continue their business. Thus, bars that continue to have their licenses are those that continue to sell significant quantities, which makes the quotas moot.

Nevertheless, the cap on the number of bars means that the liquor scene in Karnataka is rather bizarre, the point being that there are no “middle class bars”. Here in Barcelona, where I’m currently on holiday, pretty much every restaurant and cafe has an alcohol license (at least beer and wine), and it is possible to have a drink in an “ordinary setting” at a reasonable price. A glass of beer at any of these establishments, for example (small quiet places which are seldom crowded), costs about EUR 1.80 (~Rs. 120 by today’s exchange rate).

In Karnataka, on the other hand, thanks to the limited licensing regime, a bar needs to do a certain minimum amount of business before it is viable. This has led to bars in Karnataka adopt one of two opposing routes. Some play the volume route, setting up an atmosphere where there is quick turnaround of customers (it can be argued that atmosphere is set up to ensure customers don’t stay too long) each of who consumes in significant volumes so that the bar can make significant amount of money despite charging only a small premium on the liqour.

At the other end you have the rather fancy “value players”, who make their margins on rather large markups on the liquor they sell. These are typically fine dining restaurants where people’s primary purpose is eating (rather than drinking) and which have rather low table turnover. A combination of the above two means that volumes are low, but such restaurants more than make up by means of significant markups. These markups are extended to non alcohol items also (these restaurants can afford to charge a premium since all other similar restaurants serving alcohol also charge the same premium, and presence of alcohol is a hygiene factor for such restaurants). Here is an old blog post where I argue why liquor regulations imply high.

So the question is if the government can do away with the bizarre regulations on minimum sales, why can’t they increase the number of liquor licenses? The problem is that it is a classic case of baptists and bootleggers. The baptist case is that by issuing more liquor licenses, it makes things easier for people to drink alcohol and that’s not a good thing for society. And the bootleggers are existing licenseholders, whose licenses will get devalued if their supply increases. I just realised I’ve already done another blog post addressing this topic.

Governments and agendas

Say what you may about the inefficiencies of the BS Yeddyurappa government in Karnataka, you must accept that the initial days were great. While the miners may have been allowed to prosper, which led to plunder and constant government instability (which led first to the BJP split and then the humiliating loss in these elections), the government did rather well in its first year of operation. Infrastructure (especially in Bangalore city) saw an improvement. I moved out of Bangalore in August 2008 (three months after Yeddy took power) and returned in June 2009, and there was a significant visible change in the city (for the better). Policing and law and order also seemed to improved (in those initial days of the Yeddy government).

It might be early days still, only four months since Siddaramaiah has taken charge, but I don’t see anything in this direction. Bangalore roads are all torn up and travel times have doubled (primarily due to potholes). Law and order seems broken (cases like this one and this one come to mind). The chief minister reportedly feigned illness and backed out of a meeting with industry captains at the last minute (heard this from two independent sources but can’t find a link). Any way, the industry in the state is not happy.

Typically, when a new government takes over, it wants to be seen gathering some “quick wins’. Typically the easiest problems to solve are to fix law and order – all it takes is to decision the police, and it typically improves whenever a new government comes to power. Another quick win is improvement of basic infrastructure – such as asphalting roads or improving water supply. Meeting industry leaders and making global statements also don’t take much effort, but go a long way in getting the support of the industry.

If it is all so easy, and the earlier government did that, why has the current dispensation not implemented any of it? I blame it on the Re. 1 per kg rice scheme. The problem with the current government is that it has a specific agenda – as soon as he came to power, Siddaramaiah announced this cheap rice scheme and promised to implement it in a month or two. This has resulted in two things. Firstly, the statement meant that most of the management bandwidth of the government bureaucracy went in managing and implementing this cheap rice scheme. Since the CM wanted this to be done in a certain number of days, officers probably scrambled to meet the deadline, thus not being able to pay attention to other issues.

More importantly, the government saw this cheap rice scheme as a quick win. The people will be generally happy  with the government if this is implemented, they might have reasoned, thanks to which other potential quick wins (policing, basic infra) took a backseat. I’m not a beneficiary of the Re. 1 per kg rice scheme so I can’t comment objectively but I’m not sure if the recipients of the scheme are happy that the scheme has been implemented or unhappy that other developments have taken a backseat.

The point with the Yeddy government is that it didn’t have a specific agenda – no “global” quick win scheme, thanks to which the government had to push on several fronts to try and score a win. And so they pushed on all fronts where quick wins were possible and managed to get them. (It is another matter, of course, that in the longer run they ran an increasingly unsteady ship and messed things up right royally, because of which they were (rightly) voted out in the next elections).

It is similar to the NDA government of 1999. There were no grand quick win plans, and that gave the government the bandwidth to push on several long-term fronts, including infrastructure projects such as the Golden Quadrilateral and the Pradhan Mantri Gram Sadak Yojana, further disinvestment and the new Electricity Acts. UPA1 on the other hand quickly came up with schemes such as the NREGA which served as a good vote-catching quick win (and it probably did its job given the enhanced majority the UPA got in 2009).

Thus, from the point of view of sustainable development and investment in public goods, it is possibly better off to have a government which has no specific idea. If not, the specific ideas might come in the way of other development.

More Karnataka: Averaging between ULB elections and 2008 elections

Recently I met my MLA, who is from the BJP, and told him about my analysis extrapolating from the recent urban local body elections, which gave Congress an absolute majority. He countered that the BJP has never been strong at the sub-state level so one shouldn’t read too much into these elections. So I decided to create this tool which uses a slider which you can use to decide how much importance to give to the ULB polls. A value of 0 represents the seat distribution as per the 2008 elections. A value of 1 uses an extrapolation of the ULB elections only (without using information from the 2008 polls). I hope you have fun with this tool.

You might also notice that I now give you the actual seat distribution party-wise.

Bangalore North, South, Central, Rural

I don’t know if you want to call this gerrymandering, but I just want to pictorially map out the areas of Bangalore that fall under different parliamentary constituencies.

White: Chickballapur

Black: Bangalore North

Red: Bangalore Central

Green: Bangalore South

Blue: Bangalore Rural

Source: http://openbangalore.org/
Source: http://openbangalore.org/

Karnataka – effect of swings from 2008 election

You can use the slider below to see how changes in vote share of major parties affects the seat distribution. The “base” here is the vote share in the 2008 Assembly Elections. The numbers on the sliders are in percentages.

This new version uses the vote shares in various districts during the recent Urban Local Body elections to account for the BJP split. As you can see, there is a slider that allows you to indicate how much of the split of the BJP’s votes as per the recent ULB elections will reflect in the forthcoming assembly elections. The reason for this slider is due to feedback that the split of BJP votes in the local body elections may not translate directly to the assembly elections.

There is also a slider called ‘performance impact’. This is based on data from the Daksh survey where samples of voters were asked to evaluate their sitting MLA. The way to use this is that when the slider is at 0, there is no impact of the MLA’s performance on vote share in the forthcoming elections. When it is at 5, an MLA who voters are “extremely happy” with will get 5% additional votes, and an MLA who voters are extremely unhappy with gets 5% less votes than what he did last time.

A Victory By Default for the Congress in Karnataka

Voters like to chase winners. Everybody wants their own MLA to belong to the winning party, for they perceive that the benefits to the constituency in that case are likely to be much greater. Some people vote by ideology. Others by caste. Many, however, just try to second-guess who the winner is, and vote for them.

A recent survey conducted by Daksh asked voters across Karnataka if they had voted for the winning candidate. A whopping 75% of the voters said they did so. In the 2008 Assembly Elections, the average vote share gained by a winning candidate was 43%. The graph here shows, constituency wise, the vote share of the winning party in the 2008 Elections and the number of survey respondents in the constituency who claimed to vote for the winner.


Source: The Daksh Survey of Karnataka MLAs and empoweringindia.org
Source: The Daksh Survey of Karnataka MLAs and empoweringindia.org

Notice how in most constituencies, the proportion of survey respondents who have said they’ve voted for the winner is far higher than the vote share the winning candidate got in the elections. This can mean one of two things. One possibility is that the sample that Daksh used for their survey was heavily biased. However, given that the result is consistent across all constituencies, it is unlikely that they would have got a biased sample in all constituencies. The other possibility is that everybody likes to be associated with the winner.

In most elections, it is difficult to gauge who “everyone else” is voting for. People sometimes rely on opinion or exit polls, but they are usually based on small samples. This election is different. It was immediately preceded by elections to 200 odd urban local bodies all over Karnataka. All towns and cities in Karnataka went to the polls only a month or two back. While there are some cities where the local bodies have been hung, if you look across the state, the verdict is clear. And people are aware of that verdict.

Given the Congress’s strong performance in the recent urban local body elections, the marginal voter is likely to swing to the Congress. Media reports indicate that all is not well with the party and there is considerable bickering for tickets. However, the weight of the marginal votes is going to be enough to push the Congress comfortably over the line. The bickering for tickets can be looked at in another way – Congressmen know that their party is going to form the government, and are extra keen on riding a winning horse.

Importance of candidate’s caste in voting

Not-for-profit Daksh recently conducted a massive survey in Karnataka which tried to understand voter preferences, evaluate MLA performance, etc. This was a comprehensive survey covering over 12000 voters across all districts in Karnataka. Apart from capturing demographic information, the survey asks questions on what candidates look for in a candidate and what issues they think are important for an MLA.

One of the questions asked was the importance of a candidate’s caste when it comes to voting. Voters were asked to indicate if it was “very important”, “important” or “not important”. For purpose of my analysis I’ve given a score of 1 for “very important” and 0.5 for “important” and 0 for “not important”. The relationship between a voter’s annual family income with his perception on the importance of caste is extremely interesting, as this graph indicates.

Data Source: Daksh Survey on Perceptions about Karnataka MLAs. Thanks to Harish Narasappa of Daksh for sharing data with me
Data Source: Daksh Survey on Perceptions about Karnataka MLAs. Thanks to Harish Narasappa of Daksh for sharing data with me