Financial Daily from THE HINDU group of publications
Friday, May 31, 2002
Industry & Economy
Privilege fees, deposit hike hit TN liquor retailers
CHENNAI, May 30
THE hikes in privilege fees and deposits without a concomitant increase in profit on margins have hit the liquor retailers in the State. While business continues as usual, viability has been severely affected, they say.
Mr C.P. Ramanathan, Secretary, Chennai Wine Merchants Association, said that over the last two decades, the State Government had shifted from a licence fee regime to an auction system and the annual payment towards licence to set up a liquor shop has increased from about Rs 20,000 to Rs 14 lakh and more in Chennai. There has also been proportionate increase throughout the State. However, the profit on margins has been maintained at 20 per cent over the last few years. This has made the business totally unviable.
The Government will have to announce a package of measures, including an increase in the profit on margins for the business to continue. The association has been hoping for a 40 per cent profit on margins.
A few months ago, the Government had been considering a 30 per cent profit but no action had been taken. Further, with the recent decision to permit liquor shops to open bars, this had involved an additional payment of Rs 3 lakh and a deposit of Rs 50,000. This necessitates a 40 per cent profit on margins, he said.
The liquor trade being a severely regulated activity from the raw material produced at distilleries to the retail end, the Government dictates profit at every level. The Tamil Nadu State Marketing Corporation (Tasmac), as the wholesaler in the State, has increased its own revenues and the liquor trade accounts for Rs 4,500 crore of the Government's revenue.
However, it is regrettable that the traders involved have been ignored, he said.
In 1981, the licence fee had been Rs 10,000, the sales tax 20 per cent and the profit on margin 15 per cent. In 1986, the licence fee had been doubled while the profit on margin had been marginally hiked to 16 per cent. In 1989, the Government had moved to an auction system with shops allotted for three years, and the minimum offset price for shops in Chennai fixed at Rs 1.25 lakh. During the second year, the licence holder had to pay Rs 1.25 lakh plus 15 per cent and for the third year Rs 1.5 lakh plus 15 per cent plus 10 per cent.
In 2001, the minimum price was Rs 14 lakh and with the recent decision to allow bars an additional Rs 3 lakh had been collected. However, since 1989, the profit on margin had been maintained at 20 per cent. In addition to the revenue from the licence fee, the taxes had also been maintained at high levels of about 55 per cent and for scotch items 70 per cent.
Meanwhile, the growth in the business is around 10 per cent, annually. But in addition to the increase in fees, the Government has also increased the number of shops. With the limited growth in business, the increase in the number has only cut the business in each shop.
Therefore, the Government's move has only helped to increase its own revenue at the cost of private business to the extent that trade has become unviable.
For instance, last year in Chennai, there had been less than 650 shops with 630 operated by the private operators and the balance with the cooperative societies or other associations. This year, the Government had offered 960 shops of which 879 had taken up in the auctions, Mr Ramanathan said.
In 1998, there had been 3,200 shops in Tamil Nadu. According to industry estimates, this was the limit that was optimal for the market. However, today, there were over 5,243 shops operating in the State, he said.
With the Government fixed fees increasing, the number of shops going up and the share of business decreasing, the livelihood of not just the traders but the two lakh families which are directly or indirectly involved are at stake. The electricity charges per month have increased from Rs 500 to about Rs 7,500 and the wages paid to the sales persons has also increased, he said.
According to one association member, the Government will have to take a pragmatic approach to the business. While looking to this sector for revenues, it will also have to allow the business to be viable. It cannot afford to have double standards for political considerations. While as a public interest message it discourages drinking of alcohol. There is a pressure on the liquor shops to increase offtake and the number of shops was also being increased.
Send this article to Friends by E-Mail
Stories in this Section
The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | Business Line | The Sportstar | Frontline | Home |
Copyright © 2002, The
Hindu Business Line. Republication or redissemination of the contents of
this screen are expressly prohibited without the written consent of
The Hindu Business Line