A new National Council of Applied Economic Research (NCAER) paper has recommended that Bihar scrap its decade-old liquor prohibition and restore alcohol excise taxes to help finance a large-scale development push. Presented at the India Policy Forum 2026, the study argues that lifting the ban could increase the state’s own revenues by 14–15 percent while reducing the heavy costs associated with enforcement, anti-smuggling operations and monitoring illegal liquor trade.
The paper states that Bihar needs a coordinated reform strategy focused on education, healthcare, governance, flood mitigation, private sector development and women’s empowerment if it is to catch up with the rest of India and contribute meaningfully to the country’s goal of becoming a developed economy by 2047. According to the authors, excise duty on alcohol accounted for nearly 14 percent of Bihar’s state revenues in the three years preceding the prohibition, making it one of the government’s most important revenue sources.
The researchers argue that the economic consequences of the ban have been significant. Since prohibition was introduced in 2016, Bihar has not only lost substantial excise revenue but has also incurred higher expenditures on policing, monitoring and anti-smuggling measures, which have added pressure on the state’s fiscal deficit. The paper estimates that Bihar will need to raise capital expenditure to 7–8 percent of Gross State Domestic Product (GSDP) over the next five years to support reforms in infrastructure, health, education and disaster management. Restoring liquor excise revenue, alongside more efficient public spending and greater support from the Centre, could provide an important fiscal cushion for these investments.
The study further contends that prohibition has not achieved one of its key stated objectives—reducing social harm linked to alcohol consumption. It notes that violence against women has continued to rise despite the ban, while anecdotal evidence suggests that legal alcohol consumption has been replaced in many areas by illicit liquor and narcotics. Reintroducing regulated alcohol sales, the authors argue, would revive excise collections, improve oversight of the liquor market and lower enforcement costs for the state government.
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Authored by Ratna Sahay, Santosh Gautam, Nishith Prakash and Aakash Dev, the paper emphasises that Bihar’s development is central to India’s long-term growth story. With an estimated population of 132 million in 2026, Bihar is India’s second-most populous state but remains its poorest. The authors warn that if Bihar fails to converge with faster-growing states, India’s ambition of becoming Viksit Bharat by 2047 will become significantly harder to achieve.
The paper traces Bihar’s economic underdevelopment to a combination of factors, including poorly implemented land reforms, the Green Revolution largely bypassing the state, the Centre’s freight equalisation policy, and the loss of nearly three-fourths of its physical and natural assets after the creation of Jharkhand in 2000. Frequent floods and droughts have further constrained agricultural productivity, infrastructure development and private investment.
Rather than relying on isolated policy measures, the NCAER study recommends a six-pronged reform package covering education, health, governance and law and order, flood management, private sector development and women’s empowerment. The authors argue that piecemeal interventions are unlikely to generate sustained improvements in productivity, employment and income levels, and that a comprehensive reform agenda—supported by stronger fiscal resources, including restored liquor excise revenue—offers Bihar a better chance of achieving long-term economic transformation
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