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.

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