Stifling Competition and Innovation

17/02/2025

The recent announcement by the Finance Department of Jammu and Kashmir regarding the new Excise Policy for 2025-26 has sparked widespread discussion. By significantly increasing various license fees and excise duties while choosing not to expand the number of liquor vends, the government aims to boost revenue. However, this approach raises several critical concerns about market dynamics, consumer impact, and economic growth. The policy's primary focus on revenue generation is evident through the increased fees across the board. The non-refundable registration fee for participating in retail vend auctions has jumped from Rs 50,000 to Rs 75,000, and similar increases apply to label fees and excise duties. While these measures may indeed fill government coffers in the short term, they risk creating a more monopolized market environment. Existing vendors, burdened with higher costs, are likely to pass these expenses onto consumers, leading to increased alcohol prices and potentially reduced accessibility.
By not increasing the number of liquor vends, the government may inadvertently stifle competition. A limited number of vends can lead to a concentration of market power, where a few vendors dominate the market, thereby reducing competitive pressures that typically drive innovation and better services. This lack of competition can also discourage new entrants who might otherwise bring fresh ideas and competitive pricing, ultimately benefiting consumers. Restricting the number of vends while increasing prices could inadvertently foster a rise in the black market or illegal alcohol sales. When legal avenues are limited and expensive, consumers may turn to unregulated and potentially unsafe alternatives. This scenario undermines the government's regulatory objectives and could result in public health concerns, negating any benefits from increased revenue.
The increased fees for serving liquor at social occasions, now standardized at Rs 7,000 per event, may deter smaller establishments and individuals from hosting events involving alcohol. This policy could negatively impact local businesses that depend on such gatherings for revenue, thereby stifling economic activity at the grassroots level. Moreover, the selective nature of fee increases-such as the exemption of JK Special Whiskey from label fee hikes-suggests a lack of strategic alignment. This inconsistency could disadvantage local brands, which are crucial for promoting the region's unique offerings. A more supportive approach could involve targeted incentives for local producers, helping them compete with larger, more established brands.
While the government's intent to generate more revenue is understandable, the execution of this policy calls for a more balanced approach. Expanding the number of vends could promote competition, enhance consumer choice, and encourage market diversity. This could be complemented by initiatives that support local brands, fostering a vibrant and inclusive market environment. Additionally, a phased approach to fee increases might allow businesses to adjust gradually, mitigating potential negative impacts on both vendors and consumers. The government could also explore alternative revenue streams, such as encouraging tourism and hospitality sectors, which might benefit from a more dynamic and accessible liquor market.
The new Excise Policy for Jammu and Kashmir raises important questions about the balance between revenue generation and market health. While the immediate financial benefits are clear, the long-term implications for market fairness, consumer access, and local economic growth must be carefully considered. By revisiting and refining this strategy, the government has an opportunity to create a more equitable and sustainable market environment, ultimately benefiting all stakeholders involved. It is essential that policies are crafted with a view toward encouraging healthy competition, supporting local businesses, and ensuring consumer welfare-key ingredients for a thriving economy.

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