Eerie parallels between CAG report on 2G scam and Delhi liquor policy

The Comptroller and Auditor General (CAG)’s Performance Audit on Regulation and Supply of Liquor in Delhi – focusing on the now-scrapped 2021-22 excise policy – has raised questions about its objectivity and context.

The CAG report heavily scrutinises decisions made under Delhi’s Arvind Kejriwal-led Aam Aadmi Party (AAP) government, flagging a “cumulative loss” of approximately Rs 2,002.68 crore in revenue under the liquor policy.

There are striking similarities between the CAG report on Delhi’s liquor policy and its 2010 report on 2G spectrum allocation.

Headline-grabbing numbers

In the 2G 'scam', a Rs 1.76 lakh-crore loss was projected based on the assumption that an auction would have fetched significantly higher revenue than the first-come-first-served allocation method.

Subsequent analyses pointed out that the estimate did not fully account for the economic benefits of affordable telecom services and increased industry competition.

Both the reports use headline-grabbing numbers, but critics argue they overstate financial damage by treating missed revenue opportunities as definite losses.

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Notional losses

The CAG report on Delhi’s liquor policy aggregates different shortfalls to arrive at the eye-catching Rs 2,000 plus crore figure. The components include potential revenue that was never realised, not money that was misused or stolen.

For example, the most significant chunk (Rs 941 crore) was an outcome of a policy not implemented in full (due to shops being barred in certain wards) rather than an active loss from the exchequer.

By labelling all these as “losses”, the report invites a lay reader to equate the new policy with a Rs 2,000 crore scandal, which overstates the case. In contrast, the audit’s findings on the 2017-21 policy (old regime) – such as under-reported sales by vendors and non-transparent price setting by wholesalers – do not sum up a single headline number.

Matter of presentation

The old system’s issues are described qualitatively, e.g. the CAG noted 28 per cent sales under-reporting per AAP’s interpretation, and common directorships in multiple licenses were flagged, but no grand total of “loss” is ascribed to them in the summary.

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This difference in presentation can mislead one to think the new 2021 policy alone caused unprecedented damage. In contrast, the old system’s leakages likely cost the exchequer significant sums over years (albeit unquantified in one number).

Ignoring other states

While Delhi’s audit magnifies AAP-era lapses, the report does not mention similar practices in other states, giving an impression of singled-out scrutiny. For instance, the CAG found that just three private wholesalers controlled over 71 per cent of Delhi’s liquor supply chain under the new policy – implying risk of cartelisation.

However, many BJP-ruled states also rely on private liquor distribution, where a few large players dominate the market.

Major flaws in old regime

The audit notes rampant smuggling and illicit liquor trade hurting Delhi’s revenue – e.g., significant liquor seizures in districts bordering the BJP-governed Haryana. Yet, the report confines blame to Delhi’s enforcement (excise intelligence bureau) for failing to curb the inflow.

Notably, the report acknowledges major flaws in Delhi’s old excise regime (2017-21) – such as widespread under-reporting of sales by vendors, unchecked black marketing, and issuance of licenses to related entities in violation of rules – which aligns with AAP’s justification for reforming the policy.

Yet, those legacy issues (which are by no means unique to Delhi) did not attract the same political spotlight until the AAP government introduced a new policy.

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Misleading figures

Similar audits in other states have found issues like short recovery of excise dues and weak enforcement – for example, a CAG compliance audit in BJP-ruled Haryana (2020-21) found Rs 123 crore worth of excise revenue shortfalls due to failure to seal defaulters’ vends and other lapses. However, those findings in Haryana were treated as routine audit observations, not a major political scandal.

The headline number of Rs 2,002.68 crore “loss” in excise revenue is a composite of several components the report tallies, but treating it as a single lump-sum loss can be misleading.

This figure includes: some Rs 941.5 crore in foregone license fees due to inability to open vends in “non-conforming” municipal wards, Rs 890.15 crore lost by not re-tendering licenses for zones surrendered by operators, a Rs 144 crore fee waiver given during a Covid-19 lockdown, and Rs 27 crore due to a shortfall in collected security deposits.

Factually contentious

While each component is documented, the report presents them cumulatively, creating an impression of a massive revenue debacle. In reality, these were largely notional or self-inflicted losses rather than funds that disappeared into corrupt pockets.

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For example, the Rs 941.53 crore was an exemption mandated by a court order – when Delhi’s master plan barred liquor shops in certain areas, licensees obtained a High Court ruling excusing fees for 67 unopened shops.

Calling this a “loss” attributable solely to the Delhi government is factually contentious since the policy intended to open those shops legally, but central agencies like the Delhi Development Authority (DDA) refused permission at the last minute. The report omits this nuance in its summary, which is a significant contextual omission.

Spectrum case

In the spectrum allocation case, the CAG's calculation of a presumptive loss of Rs 1.76 lakh crore was based on extrapolated figures, including auction prices of 3G spectrum, which critics argued were not directly comparable to 2G spectrum allocations. The CAG admitted that the Rs 1.76 lakh crore figure was a presumptive loss based on hypothetical scenarios, such as foreign investments received by companies or auction prices from other spectrums like 3G.

Different methods produced varying loss estimates ranging from Rs 57,000 crore to Rs 1.76 lakh crore, highlighting the speculative nature of the calculations. Subsequent investigations by agencies like the Central Bureau of Investigation (CBI) estimated much lower losses (Rs 30,984 crore), further questioning the CAG's figures.

The Supreme Court later cancelled all 2G licenses issued under the flawed process but did not validate the Rs 1.76 lakh crore loss figure.

Also read | ‘Rs 2026 crore loss’: CAG report jolts AAP ahead of polls; exposes Kejriwal, says BJP

Ignoring external factors

Some factual comparisons in the report may be flawed by omission. For instance, the CAG notes that Delhi’s wholesalers were free to set ex-distillery prices (EDP) for liquor, resulting in higher liquor prices in Delhi and potentially lower sales and revenue than could have been achieved.

While the data may show Delhi’s prices were higher, the report doesn’t account for external factors (e.g. the Covid-19 pandemic’s impact on sales or differences in tax rates across states) in attributing revenue shortfall to pricing decisions. It’s hard to know how much of the dip was due to policy versus broader market forces without comparing consumption trends in similar periods in other states.

By not providing that context, the report risks overstating the impact of Delhi’s pricing in isolation.

Misrepresentation of facts

The report faults the Excise Department for not re-tendering surrendered zones and implies that Rs 890 crore could have been recovered. However, it doesn’t clearly state that these surrenders happened in the latter part of the policy’s brief nine-month lifespan (many in mid-2022) when the policy was already under attack and set to be withdrawn.

In practice, there was little time or market appetite to re-auction those zones before the entire new policy was scrapped. Similarly, the report points out that an expert committee’s recommendations were disregarded. But it glosses over that policy-making can legitimately diverge from advisory panels.

For example, the committee suggested a government-run wholesaler and a cap of two retail vends per entity, whereas the government chose a different model (private wholesalers and more prominent zones)

Deviation or policy choice?

Presenting the deviation as a de facto lapse is somewhat misleading – it was a policy choice, which may be debated, but is not factually “wrong” in the sense of legality. The report's narrative can be one-sided by not acknowledging the government’s rationale (such as expecting higher competition and revenue through open bidding).

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The audit highlights that the Delhi government waived Rs 144 crore in license fees for one month during Covid-19 restrictions, calling it an “irregular grant of waiver” that led to revenue loss.

Suggesting malfeasance

This characterisation creates an impression that an improper favour was done to licensees. In reality, many states provided relief to liquor vendors during pandemic lockdowns. In Haryana (2020), for instance, the excise department similarly relaxed license fees for closed establishments during lockdown and even imposed a special “Covid cess” on liquor elsewhere.

The difference is that Delhi’s policy terms originally had no force majeure clause (explicitly putting the risk on licensees), so the waiver was granted after violating the tender terms.

While the CAG is correct on the rule, the report’s tone suggests malfeasance but doesn’t fully acknowledge the context (a public health emergency and resultant court orders). By isolating the data point of a Rs 144 crore waiver without that backdrop, the report risks exaggerating the impression of “wrongdoing”.

Standard industry practice

Specific data points in the report are highlighted to underscore possible impropriety, even if the situation may be standard industry practice. The CAG points out that just three wholesalers (distributors) handled 71 per cent of Delhi’s liquor supply under the new regime, effectively deciding which brands got market access. This is presented as a red flag (“risk of monopolies and brand pushing”).

While concentration is indeed a concern, many states often see a few large distributors dominate due to economies of scale. Without comparative data (e.g., how many wholesalers and what market share distribution exists in, say, Uttar Pradesh or Karnataka), the 71 per cent figure sounds scandalous. It may simply reflect that big players won the bids in Delhi’s open tender – something one might expect in any competitive bidding scenario.

No illicit intent

By not providing that industry context, the report’s data presentation can be seen as casting the outcome in the most negative light, feeding a narrative that the policy was tailor-made for a cartel. In the same vein, the report notes the new policy allowed licensees to have up to two zones (i.e. 27×2 = 54 vends) each, versus an expert recommendation of capping at two shops per entity.

This indeed shows a dramatic policy shift favouring big players, but the data point alone doesn’t prove illicit intent – it was a policy philosophy difference (consolidation vs. distribution of licenses) that is debatably represented as a conclusively nefarious move.

The report’s narrative on the new policy focuses on problems during its short life, with little mention of any positive trend or rationale. For instance, the stated objectives of the 2021-22 excise policy were increasing government revenue, curbing the black market, and improving consumer experience. The audit does note that these aims existed but says they were not achieved due to implementation failures. Uptick in revenue

It does not quantify any uptick in revenue that briefly occurred. (Delhi’s excise revenue for 2021-22 did see an initial rise before the policy’s premature withdrawal – a context left out in the audit summary.) Similarly, outside Delhi, when a comparable excise model was implemented in Punjab (2022), the first-year results saw a sharp revenue jump from Rs 6,158 crore to Rs 8,841 crore. That suggests that the policy model could yield gains if allowed to function.

Of course, the CAG report on Delhi couldn’t analyse Punjab’s data – but by not mentioning the early signs of revenue improvement or the potential long-term gains the policy claimed to target, the report presents data in a solely damning light. This one-sided portrayal (problems without acknowledging intended benefits) contributes to a public perception that the new policy was nothing but harmful, which is a skewed picture of the data.

Endemic problems

Many audit observations in the Delhi report reflect endemic problems of the liquor trade, yet the report frames them as findings specific to Delhi’s policies.

For example, the CAG criticises poor quality control, noting that many liquor brands’ samples lacked required lab test reports for safety parameters (like the absence of reports on methyl alcohol or heavy metals) and that Delhi had not operationalised promised testing labs. This is a valid concern – Delhi should ensure liquor quality – but the report implies a significant lapse by the Delhi excise department. In truth, such lapses are not uncommon: several states face backlogs or absence of rigorous testing, and illicit alcohol remains a nationwide challenge. By spotlighting it in the Delhi report without reference to other states’ excise oversight, it can appear that Delhi’s regulators were uniquely negligent.

Overstated findings

The excise intelligence bureau’s weaknesses in Delhi (e.g. lack of standard operating procedures for inspections, as noted by CAG) are similarly a generic bureaucratic shortcoming framed as a Delhi-specific failure. It’s a selective criticism because one would be hard-pressed to find a state excise department where CAG wouldn’t find procedural weaknesses – yet only Delhi’s gets public censure.

Ultimately, the CAG report provides fodder for a narrative of wrongdoing, but a closer, comparative look suggests that some of its findings are overstated or isolated from context.

By aggregating notional losses into a singular high-impact number, the report frames the 2021-22 excise policy as a major financial misstep, even when the breakdown of these figures suggests that several components stem from legal constraints, policy shifts, and pandemic-related measures rather than actual financial wrongdoing.