The War Against Illegal Goods As India Fights

India’s wholesale inflation rate has been declining since July this year but has remained in double digits since April 2021. The inflation rate was recorded at 12.41% last month, up from 13.93% in July. Persistently high inflation causes people to defer purchases, buy less, go for reuse and recycling, or simply switch to cheaper alternatives. The search for cheaper alternatives kicked up a storm – the market is flooded with cheap substandard goods or counterfeit and counterfeit brands, giving a dream to parallel economy players.

This is where the China angle comes in. Parallel economy dealers need access to cheap goods doing similar jobs, suitably served by humming factories in China. As we approach the festive season, we will again see markets full of Chinese goods – from Diwali lights, puja idols, electronic items and bicycles to everything the consumer needs. Clearly, the government’s response to this situation is centered around its self-reliance or ‘atmanirbharta’ agenda, which should focus on producing goods in bulk at the lowest possible cost. The government’s intent is certainly taking shape, as echoed by Piyush Goyal, Minister of Commerce & Industry, Consumer Affairs and Food & Public Distribution and Textiles, in a recent tweet. He added: “Our toy manufacturing sector is booming, with Indian toys rapidly filling the shelves at home and abroad.” Such a victory will be possible only if India can reduce the cost of manufacturing by removing anomalies at each stage in the value chain.

booming market

The consumer’s search for cheaper alternatives raises another threat that plagues even more – a booming, smuggled and illicit goods market. This hurts more because it is done at the expense of taxes to the government, depriving the country of the fuel needed to drive social change. In this economic activity, the target is not the cheaper class of goods, but the more expensive class of goods. According to the Federation of Indian Chambers of Commerce and Industry’s Committee Against Smuggling and Counterfeit Activities Destroying the Economy (CASCADE) – one of the most well-known data sources for information on smuggling – the illegal market is thriving in five major Indian industries Is. This includes mobile phones, fast-moving consumer goods (FMCG) – household and personal items, FMCG-packaged foods, tobacco products and alcoholic beverages. The size of the illegal market in these industries was estimated at Rs 2,60,094 crore in 2019-20.

According to a report by the Economist Intelligence Unit, India ranked low on the Global Trafficking Environment Index in 2018 and quantitative action was needed to reduce the risk of trafficking on the economy. With respect to three of the four elements, i.e. government policy, supply and demand, and the customs environment, India is in the third quartile of the 82 countries included in the index. It ranks 35th in terms of transparency and trade.

The CASCADE report estimates that the total estimated lawful employment loss as a result of trafficking in the above mentioned industries is 15.96 lakhs. The combined FMCG industry (household and personal goods, and packaged food), due to its illegal market size, is responsible for approximately 68% of job losses. The estimated tax loss to the government on account of illegal goods in these industries is estimated at Rs 58,521 crore. The report further states that two highly regulated and taxed industries, tobacco products and alcoholic beverages, account for 49% of the total tax loss to the government.

Rationalization of taxes, promotion of local brands

A lesser known fact is that more developed manufacturing markets support smuggling only by pretending and do not take strong action against their exporters and international traders as it does not harm their local economy but helps their manufacturing sector . Therefore, there have been fewer supporters for the war against trafficking in the developed world and in countries such as China. This is India’s fight as it is one of the most consuming countries with porous borders and a weak enforcement mechanism to check smuggling.

The only practical way to stop smuggling and trafficking is if the government continues to rationalize taxes in categories where smuggling is high, so that smugglers are provided with low-cost arbitration incentives as well as the ability to create world-class brands and products. To aggressively promote local industry. , This will reduce dependence on international manufacturers. There is a common thread in both the cases – the need to support local industry by rationalizing taxes and providing incentives to local manufacturers so that they can make world class goods that can compete with global brands in India as well as in global markets. It is also relevant to allow global brands to manufacture in India, provided they can offer India-specific pricing and are not allowed to remit royalties and profits earned from goods consumed by Indians outside the country. China has a very successful policy in which multinational corporations (MNCs) reinvest profits earned by subsidiaries in China. India can give concessions to multinational companies by allowing them to repatriate profits earned from goods sold outside India. This will propel India as a global manufacturing destination and enable MNCs to achieve their top goals. Today, with India’s growing stature and attractiveness as a fast growing economy, it is time to strike a better bargain.

use of technology in enforcement

Rapid collective action, restrictions on repatriation of profits and strict law enforcement using a mix of strategies rooted in smart taxation are steps that will prevent smuggling, illegal and the influx of cheap, low-quality goods into the country. According to CASCADE, enforcement can be improved by using cutting edge technology such as artificial intelligence, blockchain and location technology. This will help in increasing the seizure of illegal goods. The government should also increase consumer awareness so that people boycott smuggled, counterfeit and poor quality goods. The supply of cheap, counterfeit and smuggled goods is only fueling crime syndicates and a parallel economy, and one where the government and consumers are the losers. There is no better time than now to give another dimension to ‘Atmanirbharta’ to accelerate our progress.

Ranganath Tannir is the general secretary of the New Delhi-based think-tank Think Change Forum.