Wednesday, August 24, 2011

Tepid Beer

Here is an example of how corruption starts. Anti corruption sentiments are high in India these days , as any Indian reader would know.  This blogger, trying to be apolitical, steers clear of any comment on the movement launched by Anna Hazare. But an instance of how a warped economic policy breeds corruption would be entirely appropriate for this blog.

The state of Andhra Pradesh is the largest beer market in India.This would not be surprising to readers with some knowledge of the state. Its is a large state with lots of people. It is also "blessed" with one of the hottest climes in the country. Naturally a cold beer would be very welcomed by many.

Unfortunately the neta babu raj is very much alive and kicking in the beer industry in Andhra Pradesh. The government decides what brands of beer you can buy, from whom and at what price. A very worthy organisation called the Andhra Pradesh Beverages Corporation Ltd  exists staffed by Ramamrithams of all shapes and hues. They tender for all the beer to be sold in the state and decide how much is to be bought from each company.

Some years back United Breweries (Vijay Mallya's company) and SAB Miller (a global giant) virtually sold all of the beer in the state. A year back government policy changed stating that they would buy beer from companies in the proportion of their national market share (only a Ramamritham can think like this). This massacred SAB Miller and benefited UB hugely - ( for sake of absolute clarity let me categorically state that I am not implying that UB had any say in this decision). Recently, the policy got reversed, benefiting SAB Miller (ditto clarification regarding any influence of SAB Miller in this decision)

What is the government doing deciding whose beer you should drink. Its none of its business. Hasn't it heard of consumer preference, supply and demand, etc etc. Why is beer any different from the hundreds of products that are bought and sold daily. There is some mistaken belief that the government should protect its citizens from the harmful effects of liquor consumption (??) and that is best achieved by controlling it. Quite apart from it being nonsensical thinking, government control is the surest way to drive bootlegging underground and spark the all too frequent illicit liquor tragedy. 

There is every temptation in an environment like this for normal commercial decisions to be taken on criteria other than economic. Why leave this window for corruption? The state of Andhra Pradesh has many issues confronting it. It needs to address so many problems. Production, distribution and pricing of beer is not one of them. Governments should get out of normal commercial activity. Let the market decide.

Corruption is a many headed hydra. Effective policing is one aspect of the solution and can be a good deterrent. Eliminating an environment that breeds corruption is also equally important.