MOSCOW, November 15 (RIA Novosti) - Forming a state monopoly to produce and sell alcohol could provoke a rise in bootlegging of spirits, Russia's Finance Ministry said on Thursday.

The ministry prepared a draft government report in response to a proposal by the Audit Chamber to establish a state monopoly on alcohol. The Audit Chamber claimed that the majority of alcohol products in Russia were produced illegally.

However, the ministry said in its report that the monopoly would not be able to stem the wave of poisoning cases caused by bootleg alcohol and would require considerable budget expenditure.

Russia has recently been swept by large-scale outbreaks of alcohol poisoning in several regions as counterfeit vodka and toxic alcohol substitutes have been sold at low prices in the country. Hundreds of Russians have died and several thousand others have been hospitalized with toxic hepatitis caused by substandard vodka.

The report says setting up a government monopoly would only be expedient under conditions of an unstable economy and high inflation.

"However, these prerequisites are currently lacking, and in the conditions of a market economy the introduction of state monopoly, in particular on the sale of ethyl alcohol, will restrict competition and discourage the development of alcoholic products," the report said.

The ministry also said that a single excise duty on alcohol could trigger a 70% price hike for medicines in Russia and make illegal alcohol production a more lucrative business.

The current system of levying excise taxes envisions exemptions to the tax, the ministry said.

"Prices for many household cleaning products and perfume and cosmetics are expected to rise from 10% to 40%, and for medicines from 2.5% to 70% given the proposed tax on a liter of anhydrous alcohol at 162 rubles ($6.5)," the ministry said.