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44% increase in manufacturing sector losses due to illicit trade: study

Government tax losses increase by 50%; study restricted to seven manufacturing sectors

BS Reporter  |  New Delhi 

Illicit trade in seven major manufacturing sectors has increased industry losses by 44 per cent in two years, said a study. Government tax (direct and indirect) losses have also increased almost 50 per cent to Rs 39,239 crore in 2014, from Rs 26,190 crore in 2012 due to this.

Federation of Indian Chambers of Commerce and Industry (Ficci) and the Committee Against Smuggling And Counterfeiting Activities Destroying the Economy (Cascade) commissioned the study, which focused on seven prime manufacturing sectors — auto components, alcoholic beverages, computer hardware, fast moving consumer goods (personal), FMCG packaged foods, mobile phones, tobacco and media and broadcasting.

“Despite the existence of requisite laws in India and arrests of suspected criminals by the police, the scale of illicit markets is huge and the criminal networks and illicit markets organisations continue to thrive,” Ficci stated.

However, the study was also not able to link the illicit markets to terror funding due to lack of adequate data based on search and seizure in India. According to the study, establishment and determination of the extent of such a link calls for strategic intelligence gathering and preparation of robust databases, which are clearly missing at present.

“Given the security implications, if not outright financial considerations, there is little to argue against carrying out such exercises. This would be the first step to contain counterfeiting and its corollary, terror and ensure that genuine business interests do not suffer,” said the study.

The estimated loss in sales in these sectors has increased from Rs 72,969 crore in 2011-12 to Rs 1,05,381 crore in 2013-14 (increase of 44 per cent).

“These numbers establish that despite best efforts undertaken to curb smuggling and counterfeiting, the illicit markets continue to thrive across all industry segments, posing a serious challenge to various stakeholders,” Ficci said.

The largest increase is seen in the alcoholic beverages and mobile phones industries where losses have risen by 151 per cent and 111 per cent, respectively.

It was observed that there is a net excess of 31 per cent of alcohol consumption in 2012 vis-à-vis production in the entire country even after factoring in the possibility of legitimate inter-state sales and closing stock. The corresponding number for 2008 and 2010 are 27 per cent and 17 per cent respectively.

“Excess consumption raises questions on the source of this consumption and possible losses to the exchequer as well as the harmful effects on consumers,” said the study.

According to Ficci, due to such illicit markets, industries lose sales revenues, governments lose tax revenues and customers knowingly or unknowingly lose out due to low quality products which could often lead to hazardous health and safety consequences.

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First Published: Thu, April 09 2015. 00:32 IST