The war against illegal goods

The war against illegal goods

The war against illegal goods as India’s fight

 #GS-02 Governance #GS-03 Internal Security, Economy

For Mains:

Why there is a rise in Black market?

  • Though India’s wholesale inflation rate has been declining since July this year, it still remains in double digits since April 2021.
  • In September, the inflation rate was recorded at 12.41%, from 13.93% in July.
  • High inflation for a prolonged time leads to people forgoing purchases, purchasing less, going in for reuse and recycling, or just switching to cheaper alternatives.
  • This leads to markets being flooded with cheap inferior goods or spurious and fake brands.

The concern about China:

  • The parallel economy dealers who need access to seemingly similar functioning cheaper goods are aptly served by factories functioning in China.
  • From Deepavali lights, pooja idols, electronic items and bicycles to everything that the consumer needs for the festival season are being flooded in from China.

What has been done:

  • The Government’s response to this situation is centered around its self-reliance or ‘Atmanirbharta’ agenda, which should place added focus on producing goods in bulk at the lowest possible cost.

The threat of Black Market:

  • A thriving black market runs at the cost of taxes to the government, depriving the country of the fuel required to drive social transformation.
  • The size of the illicit market in these industries was valued at ₹2,60,094 crore in 2019-20.
  • The estimated tax loss to the Government due to illicit is approximately ₹58,521 crore.
  • Tobacco products and alcoholic beverages, though highly regulated and taxed, account for 49% of the overall tax loss to the Government.
  • India’s is especially vulnerable to emergence of black market as it is one of the largest consuming countries with porous borders and a weak enforcement machinery to stop smuggling.

Which areas are vulnerable to black market:

According to the Federation of Indian Chambers of Commerce and Industry (FICCI)’s Committee Against Smuggling and Counterfeiting Activities Destroying the Economy (CASCADE), Black market is thriving in five key Indian industries which are:

  • mobile phones,
  • fast-moving consumer goods (FMCG),
  • household and personal goods,
  • FMCG-packaged foods,
  • tobacco products, and
  • alcoholic beverages.

According to Economist Intelligence Unit’s Global Illicit Trade Environment Index 2018,

  • India needs quantifiable actions in three of the four elements, i.e., government policy, supply and demand, and customs environment.

Black market and Unemployment:

  • The CASCADE report estimates that unlawful trade in the industries mentioned above results in a total estimated legitimate employment loss of 15.96 lakh.
  • The combined FMCG industry (household and personal goods, and packaged foods), due to its illicit market size, accounts for about 68% of job losses.

What can be done:

  • India needs to bring down the cost of manufacturing by addressing anomalies at each stage in the value chain to increase our manufacturing capacity.
  • Government needs to keep taxes rationalised in the categories where smuggling is high, so as to give lesser cost arbitrage incentive to smugglers.
  • We also need to aggressively promote local industry to build world-class brands and products.
  • Allowing global brands to manufacture in India also is a viable option provided they can offer India-specific pricing and are not allowed to remit royalties and profits out of the country earned from goods being consumed by Indians.
  • Fast collective action using a mix of strategies that are rooted in smart taxation, restrictions on profit repatriation and stricter law enforcement are steps that will stop the inflow of smuggled, illicit and cheap, low-quality goods into the country.
  • Enforcement can be improved by using cutting-edge technology such as artificial intelligence, blockchain, and location technology.
  • The Government must also increase consumer awareness so that people boycott smuggled, counterfeit and poor quality goods.