Besides strengthening Atmanirbharta, swift collective action anchored in smart taxation, restrictions on profit repatriation and stricter law enforcement are some of the necessary steps the government must take.

Besides strengthening Atmanirbharta, swift collective action anchored in smart taxation, restrictions on profit repatriation and stricter law enforcement are some of the necessary steps the government must take.

India’s wholesale inflation rate has been declining since July this year, but has remained in double digits since April 2021. Last month, the inflation rate was recorded at 12.41%, compared to 13.93% in July. Persistently high inflation is pushing people to put off shopping, buy less, reuse and recycle, or simply switch to cheaper alternatives. The search for cheaper alternatives is setting off a storm – markets are flooded with cheap substandard products or bogus and bogus brands, giving shadow economy players a dream run.

This is where the China angle comes in. Black economy dealers need access to seemingly similar cheap products, which are suitably served by buzzing factories in China. As the festive season approaches, we will, once again, see bazaars full of Chinese goods – from Deepavali lights, pooja idols, electronics and bicycles to whatever the consumer needs. Clearly, the government’s response to this situation centers on its self-sufficiency program or ‘Atmanirbharta’, which should place more emphasis on producing goods in bulk at the lowest possible cost. The government’s intention is certainly taking shape, as echoed by Piyush Goyal, Minister of Commerce and Industry, Consumer Affairs and Food and Public Distribution and Textiles, in a tweeted recently. He said, “Our toy manufacturing industry is booming, with Indian toys quickly filling shelves at home and abroad.” Such gains would only be possible if India could reduce the cost of manufacturing by addressing anomalies at every stage of the value chain.

A flourishing market

The consumer’s search for cheaper alternatives gives rise to another threat that hurts even more: a booming market for contraband and illegal goods. It hurts more because it comes at the cost of taxing the government, depriving the country of the fuel needed to drive social transformation. In this economic activity, the target is not the cheapest category of goods, but rather the most expensive class of goods. According to the Committee Against Smuggling and Counterfeiting Activities that Destroy Economy (CASCADE) of the Federation of Indian Chambers of Commerce and Industry – one of the best-known data sources for information on smuggling – the illicit market is thriving in five key Indian industries. This includes cell phones, fast moving consumer goods (FMCG) – household and personal goods, FMCG packaged food, tobacco products and alcoholic beverages. The illicit market size in these industries was valued at ₹2,60,094 crore in 2019-2020.

According to a report by the Economist Intelligence Unit, in 2018 India ranked at the bottom of the Global Illicit Trade Environment Index and needed quantifiable measures to reduce the risks of illicit trade on the economy. On three of the four elements, namely government policy, supply and demand, and customs environment, India ranks in the third quartile of the 82 countries covered by the index. It ranks 35 in terms of transparency and commerce.

The CASCADE report estimates that illegal trade in the above mentioned industries results in a total loss of legitimate jobs estimated at 15.96 lakh. The combined FMCG industry (household and personal items and packaged food), due to the size of its illicit market, accounts for approximately 68% of job losses. The estimated fiscal loss to the government due to illicit goods in these industries has been estimated at ₹58,521 crore. The report further reveals that two highly regulated and taxed industries, tobacco products and alcoholic beverages, account for 49% of the overall tax loss to the government.

Streamline taxes, promote local brands

A lesser known fact is that the most advanced manufacturing markets subtly support smuggling by paying lip service and not taking strong action against their international exporters and traders, as it does not harm their local economy but helps their manufacturing sector. Consequently, there have been fewer supporters in the developed world and in countries like China for the war on smuggling. This is India’s struggle as it is one of the biggest consumer countries with porous borders and weak enforcement mechanism to stop smuggling.

The only practical measure to stop smuggling and illicit trade is for the government to keep taxes streamlined in categories where smuggling is high, so as to give smugglers less incentive to arbitrage costs and aggressively promote local industry to create world-class brands and products. . This would reduce dependence on international manufacturers. There is a common thread running through both: the need to support local industry by streamlining taxes and providing incentives to local manufacturers so that they can produce world-class products that can compete with global brands in India as well than in world markets. Allowing global brands to manufacture in India also remains relevant provided they can offer India-specific pricing and are not allowed to transfer royalties and profits from goods consumed by Indians out of the country. China has a very successful policy in which multinational corporations (MNCs) reinvest profits made by subsidiaries in China. India can make a concession by allowing multinationals to repatriate profits from goods they sell outside India. This will propel India as a global manufacturing destination and multinationals will be able to achieve their major goals. Today, with India’s growing clout and appeal as a fast-growing economy, it’s time to strike a better deal.

Use of technology in the app

Swift collective action using a mix of strategies rooted in smart taxation, restrictions on the repatriation of profits and stricter law enforcement are measures that will stop the influx of contraband, illicit, cheap and bad quality in the country. According to CASCADE, the app can be improved by using advanced technologies such as artificial intelligence, blockchain and location technology. This will help increase the seizure of illegal goods. The government also needs to increase consumer awareness so that people boycott smuggled, counterfeit and shoddy products. The supply of cheap, counterfeit and contraband goods only fuels crime syndicates and a shadow economy, and where the government and the consumer are the losers. There is no better time than now to give ‘Atmanirbharta’ another dimension to accelerate its progression.

Ranganath Tannir is Secretary General of Think Change Forum, a New Delhi-based think tank