Socio-economic Impact of Illicit Trade Smugglers switching over to low-risk, high-reward goods like cigarettes and fabric/silk yarn - FICCI report

FICCI CASCADE (Committee Against Smuggling and Counterfeiting Activities Destroying the Economy) in association with the National Academy of Customs, Indirect Tax and Narcotics, (NACIN) organized a capacity building programme on the 'Socio-Economic Impact of Illicit Trade' on September 26 at NACIN, Faridabad. The objective was to sensitize officers of Indian Revenue Service on the ill effects of illicit trade.

Ms. Reena Arya, Additional Director General, NACIN, Chief Guest at the programme, stated that illicit trade was a global problem of enormous scale, impacting human lives and virtually every industry sector around the world. India was no exception, suffering significant economic and health & safety consequences as a result of widespread smuggling and counterfeiting in the country.

Mr. P.C. Jha, Advisor, FICCI CASCADE and Ex-Chairman, Central Board of Excise and Customs gave a detailed overview on the Socio-Economic Impact of Illicit trade. In his presentation Mr. Jha highlighted FICCI CASCADE's initiatives to curb smuggling through various awareness programmes engaging industry, policy makers, law enforcement officials, voluntary organizations, the youth and consumer at large. He added that one of FICCI CASCADE's mandates was capacity building of law enforcement agencies including Judges, Police and Customs Officers and CASCADE has been working extensively in this area nationally, organizing training programmes and seminars along with continuous interactions with the law enforcement authorities to emphasize on the importance of continued awareness and seriousness of the impact of counterfeit and smuggled goods.

The programme further accentuated how illicit trade in terms of smuggling and counterfeiting was increasingly becoming a hugely lucrative business, with criminals relying on the continued high demand for cheap goods coupled with low production and distribution costs. The illegal activities related to smuggling take advantage of unaware consumers and bargain-hunters, exploiting people's appetites for brands or simply their financial situation. The criminal networks behind this operate across national borders in activities that include the manufacture, export, import and distribution of illicit goods. Illicit trading activities affect everyone, with Governments, businesses and society being robbed of tax revenue, business income and jobs. The markets when flooded with such goods creates an enormous drain on the economy by creating an underground trade that deprives Governments of revenue for vital public services and imposes greater burdens on taxpayers.

As per FICCI CASCADE report, the total loss to the government on account of illicit markets in just seven manufacturing sectors is Rs.39,239 crores in 2014. Amongst the various sectors, the maximum revenue loss to the exchequer on account of counterfeiting and illicit trade is attributed to tobacco products, estimating a revenue loss of Rs.9139 crores followed by mobile phones at Rs.6705 crore and alcoholic beverages at Rs.6309 crore.

The study also establishes a relationship between high taxes and availability of illicit products. High tax rates tend to exacerbate illicit markets by creating greater demand for cheap and counterfeit substitutes. A significant reason being that high tariffs and taxes create opportunities for those involved in illicit markets to step in and supply 'reduced' versions of the original product at lower prices. A perspective of having the right balance between tax revenue targets and consumer interests is therefore imperative.

According to FICCI's recent report - 'Invisible Enemy - A Threat to Our National Interests' - focusing on the negative impact of smuggled goods on the Indian economy and businesses, the smugglers are now switching over to cigarettes and fabric/silk yarn as they are low-risk, high-reward goods. As per the report, in the last one year, the Department of Revenue Intelligence (DRI) seizures of smuggled cigarettes has increased by 78% (from Rs.90.75 crores in 2014-15 to Rs.162 crore in 2015-16) followed by fabric/silk yarn where the increase is by 73% (from Rs.24.03 crores in 2014-15 to Rs.41.78 crore in 2015-16).

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