On December 6, in the Kerala assembly, four MLAs from the ruling front told Finance Minister K.N. Balagopal there are allegations that the lion's share of the state’s revenue comes from lotteries and alcohol. Saying the "disinformation" is discrediting Kerala's achievements, they sought clarification from him to put to rest the allegations.
In response, Balagopal told the legislative assembly that in 2021-22, the total gross revenue of the state is Rs 1,16,640.24 crore and that the “net revenue” from lotteries is just Rs 559.64 crore. THE WEEK here analyses these figures to check whether they reflect the full picture of money earned via state lotteries and the influence of lotteries in Kerala society.
The money flow from state lotteries
The state lotteries directorate has a monopoly over sales of paper lotteries in Kerala. The lotteries directorate print and sell 1.08 crore ‘daily’ lottery tickets every day in Kerala. The Lotteries (Regulation) Act of 1998 says that no lottery shall have more than one draw in a week, and bumper draws of a lottery shall not be more than six in a calendar year.
Circumventing these regulations, the lottery department in Kerala runs seven different ‘daily’ lotteries—which ensures there are daily draws—and six bumper lotteries in a year. Around 2.75 lakh prizes (98 per cent are consolation prizes) are given under each ‘daily lottery’. The sources from the state directorate of lotteries say that in the post-pandemic period, the number of unsold tickets is almost nil. This means every day Keralites spend around Rs 43.2 crore on lotteries.
The budget documents of the state reveal that the total gross revenue earned by the state government from the state lotteries was Rs 6,974 crore in 2021-22. The minister, in his December 6 reply, said that the “vittuvaravu” (‘turnover’) from lotteries in 2021-22 is Rs 7,145.22 crore. Clearly, this figure does not match the figure provided by the budget in the brief document. It is also clear that when the state’s total gross revenue was calculated, the minister considered this total gross revenue from lotteries in it and not just the ‘net revenue’ from lotteries.
However, Balagopal conveniently presented the ‘net revenue’ to support the government’s stance that lotteries do not contribute massively to the state coffers and that most of the resources consolidated via lotteries are diverted back to the public via prize money and agent commission.
‘Net revenue’ or ‘net profit’?
Although the minister used the term ‘net revenue’ in the assembly, the state lotteries directorate uses the term ‘net profit’ on its website to denote the total amount gained by the government after subtracting all the expenditures from total gross revenue.
Now, coming to the calculation of this ‘net profit’. The government’s spending to run state lotteries mainly happens under five heads: prize money; agent commission; advertisements; other establishment costs (money spent for printing and distribution of lotteries and for conducting draws); salaries of employees working with the lotteries directorate.
An RTI document obtained by THE WEEK shows that the total money spent on prize money in 2021-22 was just Rs 4,079 crore. The government spent Rs 524.3 crore on agent commission and just Rs 20.21 crore on advertisement. These three figures add up to give only Rs 4,623.79 crore.
If the total turnover from lotteries is Rs 7,145.22 and the total profit from the same is only Rs 559.64, then the government’s total revenue expenditure on lotteries must come to Rs 6,585.58 crore (that is Rs 7,145.22- Rs 559.64).
Now, the minister’s claim that the state government earns only Rs 559.64 crore means that the government had spent Rs 1,961.79 crore under its expenditure head in addition to the money it spent on prize money and agent commission (the money that is said to have diverted back to the public) and on the advertisement.
It is not logical to think that the government would spend over Rs 1,900 crore on printing and distribution. It is unclear whether, the minister counted the money spent on salaries given to government employees—who provide ‘service’ for the public—also under revenue expenditure on lotteries while calculating the ‘net revenue’. If that is the case, then the government is diverting money from poorer sections to the salaried class as most of the regular buyers of lottery tickets are from the poorer sections of Kerala society.
Tax on the poor?
Economists like Jose Sebastian point out that lotteries act as an indirect tax on poorer sections, as the government’s resource consolidation via lotteries actually amounts to draining the money of the poor. Sebastian also argues that this sort of mass consolidation of results from lotteries increases inequality among poorer sections as the government is diverting money from a large section of society to the hands of a few winners.
Now, Kerala state lotteries are a product that belongs to the top GST tax bracket of 28 per cent. Which means that it is considered a ‘sin good’ by the government. In 2021-22, the government collected Rs 2,000.47 crore as tax on lotteries—it should be recalled that this was the peak pandemic period.
The state government earns half of the GST revenue from lotteries—which means it earned around Rs 1,000 crore from lotteries via the GST route in the last financial year. This amount is also invisible in the answer delivered by the finance minister in the assembly.
The RTI document obtained by THE WEEK also reveals that in the last decade, the tax collected by the state government increased by 268.75 per cent. In 2011-12, the government collected only Rs 542.5 crore from lotteries as taxes. This has increased to Rs 2,000.47 crore in 2021-22.
Another interesting fact is that the government is spending less amount compared to five years ago in terms of prize money (which is the money that has the potential to go back to the poorer sections). In 2017-2018, Rs 4,303.17 crore was spent on prize money. In 2020-21, the government spent only Rs 2,761.27 crore and in 2021-22, it spent only Rs 4,079 crore on prize money.
In 2019, RTI activist Raju Vazhakkala found out that the government had absorbed Rs 663.96 crore in unclaimed prizes between 2010 and 2018. As per law, prizes that are not claimed within a stipulated period shall become government property. The money absorbed in this route is also not reflected in the finance minister’s answer in the assembly. The RTI data also says that the “net profit” of Kerala state lotteries dipped from Rs 1,763.69 crore in 2019-20 to Rs 559.64 crore in 2021-22. It is not clear how this dip of more than Rs 1,200 crore happened in the ‘net profit’ in a gap of just two years.
The share of lotteries in the state’s own non-tax revenue
The state lotteries contributed around 70 per cent of the state’s own non-tax revenue in Kerala in 2021-22. Kerala’s own non-tax revenue in 2021-22 was Rs 100,38.04 crore. And, lotteries contributed Rs 6,974 crore (according to the budget in the brief document) to it. It should be noted that without lotteries, the state’s own non-tax revenue is just 3,064.04 crore.
Even when the total gross revenue from lotteries is also included, the state’s own non-tax revenue forms only 6.78 per cent of total revenue receipts. Comparing it with Kerala’s neighbour Tamil Nadu, we find a stark difference. Lotteries are banned in Tamil Nadu. The state earned Rs 11,830 crore under the state’s own non-tax revenue sources in 2021-22.
Financial expert and former public expenditure finance committee chairperson Mary George told THE WEEK that the Kerala government is not using the full potential of its own non-tax revenue sources. "The non-tax revenue is very low in Kerala," she said.
"In 2003, World Bank did a study of 169 countries. That study revealed that on average, 39 per cent of the own revenue of the states came from non-tax revenue. In Kerala, during 2012-13, it was just 6 per cent. There has had a slight increase in the subsequent years, but still it remains low. And, the government is showing big indifference to collecting non-tax revenues from domains like education, healthcare and land registration. A major reason is that this collection process is spread out over 36 departments. If we are tapping all these economic sources properly, we can increase the per cent of the state's own non-tax revenue in total gross revenue.”
The massive growth of the share of lotteries in the state’s own non-tax revenue
It is in the last decade that the Kerala state lotteries made aggressive growth. Even in 2010-11, gross revenue from state lotteries was only Rs 571.46 crore—which contributed only 29.3 per cent of Kerala’s own non-tax revenue. However, now, the state lotteries consistently contribute more than 70 per cent of the state’s own non-tax revenue. In 2019-21, it even crossed 80 per cent of the state’s own non-tax revenue.
The fourth report submitted by the Fourth Kerala Public Expenditure Review Committee in April 2019 observed that the state’s own non-tax revenue “has grown on the back of growth in the gross collection under Lotteries. It is noted that the total collection of non-tax revenue excluding Lotteries has shown negative growth. The negative growth rate in respect of some major items of non-tax revenue other than Lotteries needs to receive the attention of the Finance department to put corrective action in time and revision of rates that were overdue…. The excessive reliance placed on collection from Lotteries is a concern as a collection under other items is showing decline or negative growth.”
Image makeover of lotteries and normalisation of gambling
It was in 2011, the lotteries directorate started ‘Karunya Lottery’—karunyam means compassion in Malayalam—to generate funds to help underprivileged people suffering from life-threatening ailments such as cancer, haemophilia, and kidney and heart diseases.
Ads featuring the finance minister and film stars sold the idea that when people buy lottery tickets, they were not really gambling but helping the poor and the needy. Karunya lotteries was a game changer as it helped with an image makeover for lotteries. Revenues crossed Rs 1,000 crore for the first time soon after the introduction of the Karunya Lottery.
“There is no sugarcoating it—buying lotteries is a form of gambling,” says Dr Sanju George, senior consultant psychiatrist at Rajagiri College of Social Sciences in Kochi and a leading expert on gambling addiction.
“However, the government is giving massive publicity to lotteries and buying lotteries has become a normalised activity in Kerala society—which is a big problem. There may be some welfare measures happening via lotteries, but it is an activity that can potentially lead to an addiction. This is a risky affair—the government should recognise it. While selling it, the government should put a statutory warning about the risk of addiction. The Kerala government is promoting it as a harmless, fun activity. Yes, it is fun for many people. But the truth is that many daily wagers spend a bulk of what they earn on lotteries.”
Interestingly, the government is now spending less money on advertising state lotteries. In 2017-18, it spent Rs 32.22 crore on ads, whereas in 2021-22 it spent only 20.21 crore on publicity. But the dip in the advertising money has not really affected the sales, which suggests how normalised lottery buying has become in Kerala society.
Welfare activities powered by lotteries; good economics?
The RTI document obtained by THE WEEK shows that in the last five financial years, the state government collected Rs 5,605.53 crore via Karunya Lotteries alone. The financial aid via Karunya Benevolent Fund is now given via the state health agency's Karunya Aarogya Suraksha Padhathi.
The KASP was formed in 2018 by integrating public healthcare and insurance programmes under Karunya Benevolent Fund (KBF) and the Centre's Ayushman Bharat-Prime Minister's Jan Arogya Yojana. The data provided by the KASP says that as on July 31, 2022, the total number of beneficiaries that got help via the Karunya Benevolent Fund was 19, 969. And, the total amount claimed by all these beneficiaries during this period was only Rs149,56,84,178 (Rs149.56 crore).
The critics of the government's lotteries policy say that it should find alternative sources that would mobilise resources from middle-class or richer sections to fund welfare activities to support the poor. “There are plenty of ways for it: You can increase electricity duty, property tax can be increased or you can increase the fees for richer sections in medical and educational segments. There are many such methods to increase your revenue. Instead, the government is employing this easy resource mobilisation technique through lotteries," says Sebastian.
"In Kerala, what is happening is that the tax collection is not happening properly. The state is not using its tax potential. In the first 10 years of Kerala’s formation (1956-1966), Kerala’s share in the total own revenue mobilised by all states put together was 4.45 per cent. Now compare it with recent figures. In 2019-20, Kerala’s relative share has fallen to 4.34 per cent. Also, over 60 per cent of what Kerala mobilises comes from four sources—liquor, lottery, motor vehicles and petrol. It shows that the government is not keen to mobilise resources from the richer sections and middle class via tax and non-tax means. Instead, it is employing anti-poor economics by mobilising easy resources from marginalised sections.”