Bengaluru: The Karnataka government’s plan to raise substantial revenue through the auction of surplus bar licences has received a poor response, with the excise department reportedly collecting only around Rs 125 crore against its ambitious target of Rs 1,000 crore.

The disappointing outcome has left the government with a large number of unsold licences and raised questions about the viability of the current auction structure. Of the 569 licences offered through e-auction, only 120 found buyers, leaving 449 licences unsold.

Auction generates only Rs 125 crore

The Karnataka Excise Department conducted the e-auction between July 24 and 31, offering 569 bar licences across the state.

The government had expected the auction to generate approximately Rs 1,000 crore for the state exchequer. However, the auction reportedly brought in only around Rs 125 crore.

This means the revenue generated was substantially below the government’s initial projection. With only a fraction of the licences attracting successful bids, the exercise has fallen considerably short of expectations.

The response also varied depending on the location of the licences. While some licences in major commercial cities reportedly attracted interest from prospective buyers, those located in smaller towns and rural areas largely failed to receive bids.

449 licences remain unsold

The biggest challenge emerging from the auction is the large number of licences that remain unallotted.

Of the 569 licences offered, 120 were sold, while 449 remained unsold. The government will now have to decide how to proceed with these licences and whether another mechanism should be adopted to attract prospective buyers.

The licences offered through the auction were not limited to newly created opportunities. They included several categories of licences that had remained pending, unused or otherwise unavailable for various reasons over the years.

The department had hoped that putting these licences up for e-auction would help unlock revenue that had remained unrealised.

Licences from several categories auctioned

According to excise department sources, the auction included licences that had remained unallotted under different quotas.

It also included licences that had been suspended or seized following alleged violations of rules. Some licences had reportedly not been renewed within the stipulated period and were subsequently cancelled.

Another category comprised licences that had been sanctioned but never commenced and were later withdrawn or cancelled.

By bringing these surplus and pending licences together for e-auction, the government sought to monetise opportunities that had otherwise remained unused.

However, the limited response from buyers meant that most of these licences continued to remain without takers even after the auction process.

High costs deter prospective buyers

Excise department sources attributed the weak response to several factors, including the high deposit amount fixed by the government.

The financial commitment required to secure a licence may have discouraged potential buyers, particularly those looking to operate in areas where liquor sales may not generate sufficient returns.

Restrictive conditions and stringent regulatory requirements were also reportedly among the factors influencing the decision of prospective bidders.

The liquor trade is also highly competitive, particularly in areas where several established outlets already operate. Potential buyers may therefore have been reluctant to commit significant amounts of money towards licences without confidence in the commercial viability of the location.

Rural areas see limited interest

The auction results reportedly showed a clear difference between major commercial centres and smaller locations.

A few licences in some of Karnataka’s major cities attracted bids, indicating that buyers continue to see commercial opportunities in locations with higher customer demand and stronger business activity.

In contrast, licences in rural areas and smaller towns failed to generate similar interest.

The difference suggests that the location and expected business potential of a licence played a significant role in determining buyer interest.

For the government, the lack of demand in these areas presents an additional challenge as it considers what to do with the 449 licences that remain unsold.

Revenue expectations take a hit

The government’s initial target of Rs 1,000 crore was based on the expectation that a substantial proportion of the 569 licences would attract competitive bids.

With only around Rs 125 crore generated, the auction has delivered just a fraction of the projected revenue.

The shortfall could affect the government’s broader revenue calculations from the excise sector. Liquor-related taxes and licence fees constitute an important source of revenue for state governments, making the performance of such auctions significant for the exchequer.

The poor response, however, indicates that potential buyers were not willing to pay the amounts anticipated by the government under the current conditions.

Government to decide next step

The immediate focus is now on the 449 licences that failed to attract buyers.

The government is expected to examine the reasons behind the poor response before deciding how to proceed. It could consider reviewing the existing conditions, reassessing the financial requirements or adopting another method to dispose of the remaining licences.

For the excise department, the auction outcome provides an indication that simply offering surplus licences may not be sufficient to generate the anticipated revenue.

The government will now have to balance its revenue expectations with the commercial realities faced by prospective licence holders. Until a decision is taken on the unsold licences, the fate of the remaining opportunities remains uncertain.