Price Elasticity of Alcohol Demand in India

Abstract

Aims

Using a household survey conducted in 2014, this study estimates price elasticity of demand (PED) for beer, country liquor and spirits in India.

Methods

Ordinary least-square models were used to estimate the responsiveness in alcohol demand due to price change. A large number of control variables were included to adjust for potential confounding in the model. Inter-district variation in alcohol consumption is adjusted for by including district fixed effects.

Results

Alcohol prices are negatively associated with demand for alcoholic beverages. The PED ranged from −0.14 for spirits to −0.46 for country liquor. Low level of education was positively associated with spirits consumption. The magnitude of elasticity varied by rural–urban, education and gender.

Conclusion

Results indicate that a policy mix of price controls and awareness campaigns would be most effective in tackling the adverse effects of harmful drinking in India.

Summary

The demand for beer, country liquor and spirits is negatively associated with its own price. The elasticity estimates ranged from −0.14 for spirits to −0.44 for country liquor. The elasticity estimates varied by rural–urban, gender and by education levels of the drinkers.