Wednesday, June 27, 2012

Alcohol imports and consumption in Nepal

Interesting stats:

  • Total alcohol import: Rs 4 billion
  • Domestic production by importing raw materials: Rs 11.70 billion
  • Export of Khukuri beer to 13 countries

Here is a news story related to this in Karobar Economic Daily. Now compare this with total garment export—one of Nepal’s top export items— of Rs 4.08 billion in 2010/11. [Btw, I checked in official data sources for beverages, spirits and vinegar (HS Chapter 22) imports and it was Rs 2.024 billion in 2010/11. Exports was close to Rs 1.023 billion. Anyway, though the figures given by Nepal Alcohol Production Association and as reported in the media might be a bit inflated, the fact is that the market for alcohol is increasing.]

There is a huge market for alcohol and the demand is increasing each year due to rise in household income, thanks to high remittance inflows. There are instances where most of the remitted money in some districts is spent on imported, high premium liquor. To bridge growing demand-domestic production gap, imports are surging. Since this also increases custom duties, the MoF is disinclined to take any corrective measures on this front (like promoting domestic firms to produce premium liquor). In fact a major portion of revenue growth is coming from duties on imports, which is rising each year.

Why not let domestic producers produce liquor by importing raw materials from abroad if consumer demand for liquor is going to grow unabated? Morality aside (for which government needs to regulate the market strictly), this would add some value to production domestically and increase job opportunities. While the investors need more fiscal incentives, the government needs more revenues from the industry. How can we create an equilibrium between these two forces?

Anyway, are we thinking right when we talk about increasing domestic revenue? How long can the MoF rely on revenue growth on the back of rising imports? This is not a sustainable approach. In fact, it’s a destructive approach—you increase imports and consumption, add little to domestic productive capacities, drain remittances on imports that could be produced domestically if given the right policies and regulatory mechanism, foster lackluster behavior and complacency right from households to bureaucracy, add little to economic growth by promoting services and trading activities in place of industrial activities, …. Where is this loop leading us to?