Urged to ban tobacco, Napoleon III, Emperor of France (1852-70), replied, “This vice brings in one hundred million francs in taxes every year. I will certainly forbid it at once — as soon as you can name a virtue that brings in as much revenue.” His uncle, Napoleon Bonaparte, is also credited with calling vices “very good patriots” (though the attribution is uncertain), while Ralph Waldo Emerson observed that “tobacco could cheerfully carry the load of armies”. Different voices, one hard-headed insight: vices are fiscally invaluable.

Yet, every age has moral crusaders whose puritanical zeal to ban tobacco, alcohol, or lotteries rests on the misconception — and conceit — that the state can extinguish persistent demand simply by declaring an activity unlawful. Pragmatists know better: a prohibition may be morally appealing yet administratively futile — or, worse, positively counterproductive.

The United States learnt this lesson the hard way. Following a sustained temperance campaign, it imposed prohibition through the Eighteenth Amendment and the Volstead Act, from 1920 to 1933. While suppressing legal supply, prohibition left demand intact, fuelling a lucrative black market controlled by violent syndicates such as Al Capone’s. Bootlegging corrupted public institutions, deprived governments of excise revenue and imposed heavy enforcement costs. The Twenty-First Amendment repealed prohibition, recognising that a regulated and taxed market could cause fewer harms than an unenforceable ban. States in India that have experimented with prohibition have faced similar challenges.

The argument for regulation

Lotteries are undoubtedly a vice, though arguably less pernicious than tobacco or alcohol. They disproportionately burden poorer households, encouraging them to stake scarce income on remote chances of reward. Rapid draws and instant games can encourage compulsive play and loss-chasing, while giant jackpots distort risk perception. Credit sales, opaque odds and manipulative advertising compound these harms. These are powerful arguments for stringent regulation, not necessarily prohibition.

Lottery bans can push players towards smuggled tickets, matka, satta, single-digit rackets and offshore portals. Operating through cash agents and mule accounts, these enterprises lack audits and age restrictions, secure prize funds and effective remedies against fraud. Governments lose lottery surpluses and GST revenue, while legitimate vendors, many of them poor or disabled, lose livelihoods and enforcement costs rise. In seeking to protect the vulnerable, the state may instead leave them at the mercy of unaccountable operators.

The state’s paternalism is not class-neutral. Affluent citizens can day-trade, use leveraged derivatives or speculate in crypto-assets despite the risk of ruinous losses. Securities trading involves skill and derivatives facilitate hedging and price discovery. Yet, the state does not test competence before admitting retail traders to these markets. The Securities and Exchange Board of India found that the vast majority of day traders and futures-and-options traders incurred losses. Financial markets are legal not because everyone acts wisely, but because risks are disclosed, intermediaries regulated and fraud punished, while adult choice is preserved. Lotteries can follow the same principle, with more stringent safeguards appropriate to games of chance.

The international norm

Lotteries are legal in nearly four-fifths of countries. Blanket prohibition survives mainly in countries enforcing strict Sharia-based gambling prohibitions, such as Saudi Arabia, Iran and Brunei, and in closed ideological regimes such as Cuba.

Across diverse political and economic systems, the norm is controlled legality, with lottery surpluses allocated transparently to education, health care, sports, welfare or infrastructure. Nearly 70% of lottery jurisdictions follow the public-operator model, in which a government body, statutory authority or State-owned company runs the lottery while private firms provide retail and technology services. Under the concession model, the State regulates the lottery but grants operating rights to a private concessionaire.

Federal countries generally entrust lotteries to their constituent units while permitting voluntary cooperation across borders. Lotteries operate in 45 of the 50 U.S. States and Washington DC; all 10 Canadian provinces and three territories; all six Australian States and both mainland territories; and all 16 German Länder. Authorisation in one jurisdiction does not confer the right to sell in another. Cross-border sales require the destination jurisdiction’s consent or participation in a cooperative arrangement. The U.S.’s Powerball, Canada’s Lotto 6/49, Australian lottery blocs and Germany’s DLTB allow participating jurisdictions to pool players and prizes while retaining regulatory autonomy.

A Lok Sabha reply of March 14, 2023, identified only nine States operating lotteries: Arunachal Pradesh, Goa, Keralam, Maharashtra, Mizoram, Nagaland, Punjab, Sikkim and West Bengal. Amid persistent State fiscal stress, the widespread preference for prohibition deserves reconsideration. Government-organised lotteries fall under Entry 40 of the Union List. The Lotteries (Regulation) Act, 1998, permits States to organise lotteries subject to Section 4 conditions, while Sections 5 and 6 empower States and the Union Government, respectively, to prohibit lotteries that violate Sections 4 and 5.

Two necessary amendments

Settled Supreme Court jurisprudence treats gambling, including State-organised lotteries, as res extra commercium, outside the protections of Articles 19(1)(g) — fundamental right to trade — and 301 — freedom of trade across India. Section 5 of the Lotteries (Regulation) Act, 1998, reflects this principle by allowing States to prohibit outside lotteries. A parallel doctrine applies to potable alcohol, allowing States to restrict or prohibit out-of-State consignments.

Yet, in B.R. Enterprises vs State of U.P. (1999), the Court read Section 5 down: a State may exclude other States’ lotteries only by abandoning its own and becoming wholly lottery-free.

This all-or-nothing rule is difficult to justify. While a State directly oversees its own lottery administration, its oversight of another State’s operations within its territory is necessarily indirect, even as it bears the local enforcement burden. This disparity in regulatory control underpins the case for excluding other States’ lotteries. Faced with this revenue-regulation trade-off, Tamil Nadu (2003) and Karnataka (2007) chose total prohibition, thereby forfeiting the option of running accountable public lotteries of their own.

Parliament should amend Section 5 to clarify that the provision applies “whether or not the prohibiting State organises a lottery of its own”. Destination-State consent should be decisive, subject to uniform treatment: a State must either admit all outside lotteries or exclude them all.

Smaller States, especially in the northeast, may fear exclusion from larger markets, but compulsory access is no remedy. A new Section 4A should authorise two or more States to establish a common lottery by agreement, pooling players, prizes, technology and costs, as in successful multi-State lotteries elsewhere.

Transparent regulation offers a more accountable alternative to prohibition. Section 4 permits States to sell tickets directly or through distributors or agents. While marketing agents may provide guaranteed revenue, departmental operation can be more transparent and enable retail distribution through small vendors, persons with disabilities, women’s self-help groups and cooperatives, broadening livelihood opportunities and limiting intermediary capture.

Kerala follows this model. In FY 2023-24, it earned ₹2,883.80 crore — ₹1,129.71 crore in net lottery revenue (or surplus) and ₹1,754.09 crore in State GST. It channels lottery surpluses into health care and welfare. Kerala’s public-operator model offers a useful, though not exclusive, template for reform.

K. Ashok Vardhan Shetty is a retired IAS officer, a former Vice-Chancellor of the Indian Maritime University, Chennai, and Member, The Justice Kurian Joseph Committee on Union-State Relations