New Delhi: Trade in illicit goods in five key industries was valued at Rs 2.6 lakh crore for the financial year 2019-2020, according to a report released Thursday by the Federation of Indian Chambers of Commerce and Industry (FICCI).

All in all, the counterfeit products cost the treasury a tax loss of Rs 58,521 crore.

The report, “Illicit Markets: A Threat to National Interests”took five key industries – mobile phones, alcoholic beverages, tobacco products, fast moving consumer goods (FMCG), household and personal goods, and packaged food FMCG – for the nationwide survey .

The research was conducted by the Thought Arbitrage Research Institute, a Delhi-based think tank, for the FICCI Committee Against Smuggling and Counterfeiting Activities that Destroy the Economy (CASCADE).

Along with the valuation and tax loss, the report also calculates job loss and recommends possible actions to address the issue.

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What is illicit trade? How is it calculated?

According to the report, an illicit market “covers all goods sold outside authorized commercial channels. In addition, it may also include artisanal products — domestic ones made outside the regulatory framework and the resale of expired products”.

Lack of data on organized questions makes evaluation “extremely difficult”, but the authors relied on “demand and supply gaps”.

Their data sources include the Ministry of Statistics and Program Implementation, Private Final Consumption Expenditure, and the General Directorate of Business Intelligence under the Ministry of Commerce and Industry.

Research showed that in each of the five industries, consumers consumed more than what was supplied by organized markets – therefore, remaining consumption was possible due to a supply of illicit goods. The share of illicit consumption was calculated by dividing the mismatch of supply and demand by the final consumption expenditure incurred for each product.

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Illicit Trade Dominates FMCG Products

Out of the illicit trade of Rs 2.6 lakh crore, around Rs 2 lakh crore has been reported in the FMCG sector.

The illicit trade in FMCG packaged food products (like confectionery, dairy products, soft drinks) was Rs 1.42 lakh crore. The authors estimated that this amount represents approximately 25% of the market.

The value of illicit trade in FMCG household and personal goods (skin care, oral hygiene, hair care, fabric care, etc.) was valued at Rs 55,530 crore, which is less than packaged FMCG products. However, in terms of market capture, these illicit goods captured approximately 34.25% of the market share — the largest among the five industries studied.

The illicit trade in alcoholic beverages was valued at Rs 23,466 crore, followed by illicit tobacco products Rs 22,930 crore and mobile phones Rs 15,884 crore.

Chart: Ramandreep Kaur | The footprint

The reason FMCG (household and personal) topped the charts in terms of market share is that branded goods charge a higher price, according to the report.

“Established brands and premium products are often the most affected, as look-alikes are available at cheaper prices and are often presented as original by misspelling etc. of the brand,” he said. he declares.

Similarly, for consumer products (packaged foods), the report indicates that the non-requirement of an industrial license for micro and small agribusiness or food industries could be one of the factors driving counterfeiting. of products.

“Counterfeit products are mostly produced in unregulated markets and by poorly paid workers; weak IPR (intellectual property rights) requirements and inadequate enforcement mechanisms associated with large informal markets further lead to an increase in the illicit market,” the report states.

According to the report, a total of 15.96 lakh job opportunities have been lost due to the illicit trade, including about 11 lakh in the FMCG sector alone. These figures were calculated using the input-output model developed by Nobel laureate in economics Wassily Leontief.

Using the same model, the authors were able to calculate how much additional revenue (in taxes) the government could have earned had the illicit trade gone through formal channels – Rs 58,521 crore for the year 2019-20.

Graphics: Ramandeep Kaur |  The footprint
Graphics: Ramandeep Kaur | The footprint

The path to follow

The report also recommends various policy measures needed in multiple directions to combat illicit trade.

From strengthening the domestic manufacturing sector to streamlining tariffs, reducing tax arbitrage, policing and tougher penalties, the authors offer a ten-point agenda in its chapter “The Way Forward.”

“To instill fear of the law in the minds of criminals, it is essential not only to prosecute them relentlessly, but also to ensure that the system does not allow them to be free without adequate punishment”, indicates the report.

“Close cooperation between different stakeholders and innovative actions are needed to free India from illicit trade. Smuggling and counterfeiting are rampant and industry, government and society are directly affected,” said FICCI President Sanjiv Mehta.

(Edited by Theres Sudeep)

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