NEW DELHI: Delhi government suffered a revenue loss of more than Rs 2,000 crore in implementing the contentious Delhi Excise Policy 2021-22, the Comptroller and Auditor General (CAG) revealed in a report that was tabled in Delhi assembly on Tuesday. The policy was withdrawn after nine months following registration of a case by CBI in July 2022 to probe alleged irregularities in its formulation and implementation.
The federal auditor highlighted that the recommendations of an expert committee — formed by govt to identify lacunae in the previous excise policy and suggest changes for the formation of a new excise policy — were ignored without any justification. The new policy had inherent design issues which increased the risk of monopolisation and cartel formation.
The CBI case and a related probe by ED into alleged charges of money laundering snowballed into a major political slugfest between BJP and AAP govt in Delhi. The investigating agencies arrested several people in the case, including the then chief minister, Arvind Kejriwal, his deputy, Manish Sisodia, and Rajya Sabha MP Sanjay Singh. All three are currently out on bail.
CAG evaluated Delhi govt’s regulation and supply of liquor in the capital from 2017-18 to 2020-21 financial years. The report was reportedly sent to the LG and Delhi govt nearly 10 months ago but was not tabled in the assembly. Newly elected CM Rekha Gupta tabled the report, which is said to be one of 14 pending with Delhi govt, on Tuesday.
According to CAG, Delhi excise department claimed a loss of revenue to the tune of Rs 941.53 crore, saying timely permissions were not taken for opening liquor vends in non-conforming municipal wards while Rs 890.15 crore was lost on account of licence fee after 19 zonal licensees surrendered their permits much before the policy was withdrawn but re-tendering could not be done. It added that there was a loss of Rs 144 crore due to the “irregular grant of waiver” to licensees because of Covid-related restrictions and closure of shops for a month from Dec 28, 2021, to Jan 27, 2022, while Rs 27 crore was the shortfall of the security deposit collected from zonal licensees.
The report states that Master Plan Delhi-2021 prohibited the opening of liquor vends in non-conforming areas but Delhi Excise Policy 2021-22 mandated opening at least two retail vends in each ward. “The excise department did not take timely action to work out modalities for the proposed vends in non-conforming areas and the initial tender was floated on June 28, 2021, without taking comments from DDA and MCD,” it said.
“Audit noted that due to a number of issues ranging from a weak policy framework to deficient implementation of the policy…there was a cumulative loss of approximately 2,002.68 crore,” said CAG.
The report said that a group of ministers (GoM), headed by the then deputy CM and excise minister Manish Sisodia, changed several recommendations of the expert committee formed to formulate the policy and allowed private parties to handle wholesale liquor operations, introduced one-time bidding instead of a lottery system to allocate vends and let licensees have 54 vends against the recommended two per entity. It added that certain decisions with revenue implications — relaxation of the coercive action mandated against defaulter licensees, waiver in license fee, refund of earnest money deposit in case of the airport zone and correction in formulae to calculate maximum retail price of foreign liquor — were taken without having mandatory approval of the cabinet and opinion of the lieutenant governor.
The auditor pointed out that the policy led to the risks of monopolies and brand pushing by allowing an “exclusive arrangement” between a few wholesalers and manufacturers and letting the distributors dominate the liquor supply chain. According to the report, just three distributors controlled over 71% of the total liquor supply chain in the capital and virtually decided which brand would succeed or fail.
The report mentioned that of 367 registered Indian Made Foreign Liquor brands, 25 accounted for nearly 70% of total liquor sales in Delhi and very few popular ones formed the bulk of sales volume, thus pointing towards formation of a cartel.
“The policy mandated an exclusive arrangement between a manufacturer and wholesalers, which led to the entire supply of all brands of a particular manufacturer being controlled by only one wholesaler. This becomes particularly relevant considering the fact that 367 IMFL brands were registered in Delhi,” the report mentioned.
This, the CAG mentioned, led to limiting the number of total licensees and increasing the risk of monopolisation and cartel formation. Under the new excise policy, wholesale licences for the supply of IMFL and FL were granted to 14 business entities, whereas the same were granted to 77 manufacturers of IMFL and 24 suppliers of FL in the old policy (2020-21).
“Similarly, for the purpose of retail vends, Delhi was divided into 32 zones (containing 849 vends) whose licences were granted to 22 entities through tendering whereas 377 retail vends were run by four govt corporations and 262 retail vends were allotted to private individuals previously,” the report said.
It added that the GoM had mentioned in its report that the entire liquor retail market under the old excise regime was controlled by a few big players through a fraudulent proxy model, but the new policy – instead of removing this anomaly – recommended distribution of retail licences in zones where one entity or person could get up to 54 vends (in two zones, the maximum one could be allotted).
According to the report, the licensees were required to set up laboratories before they were granted the licence but the excise department issued the related guidelines only a week before the new policy was rolled out. “The essential pre-condition to set up laboratories to ensure quality of liquor supplied was not enforced by the excise department due to delay in issuing guidelines. The licensees were allowed an extension of two months initially for setting up of the laboratory though there was no provision for this in the policy. A further extension till March 31, 2022, was granted due to the Covid pandemic. Even after this extension, they were set up only in 19 out of 62 warehouses. Batch testing was not even started in these labs,” said the report.
CAG said the department was supposed to constitute special teams to pick up samples from bonded warehouses, retail vends, hotels, clubs and restaurants across all brands and publish reports of the same on the website. No reply was provided in spite of multiple reminders and it could not be verified whether such special teams were ever constituted, it stated.
“Several fundamental changes were effected in the excise policy for 2021-22 relating to the levy and collection of excise duty, administration of the liquor supply chain and coverage of retail operations. The actual policy contained provisions which were at variance with the underlying objectives for change in policy and the expert committee report,” the CAG report mentioned.
“Responsibility and accountability should be fixed for the lapses observed and the enforcement mechanism should be strengthened,” it concluded.