The war against illegal goods as India’s fight

Source– The post is based on the article “The war against illegal goods as India’s fight” published in The Hindu on 13th October 2022.

Syllabus: GS3- Economy and Internal security

Relevance– Parallel economy

News- The article explains the impacts of high inflation on the illegal goods market. It also provides suggestions to stop these practices.

Inflation has remained in double digits since April 2021.It was recorded at 12.41% in August.

What are the impacts of high inflation?

Parallel economy– The high inflation leads to a search for cheaper alternatives. It gives rise to a parallel economy. Cheaper goods from China flood the Indian market.

Illegal goods market– Search for cheaper alternatives give rise to the illegal goods market. It leads to loss of taxation revenues for the government.

According to the FICCI’s CASCADE report the illicit market is thriving in five key Indian industries. This includes mobile phones, fast-moving consumer goods (FMCG) -household and personal goods, packaged foods, tobacco products, and alcoholic beverages.

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 goods in these industries has been estimated to be ₹58,521 crore.

According to a report by the Economist Intelligence Unit, in 2018 India ranked low in the Global Illicit Trade Environment Index. It needs quantifiable actions to bring down the risks of illicit trade on the economy.

What should be the course of action?

Improve the taxation structure– Government should rationalize the taxation structure. It should incentivize local manufacturers to make world-class goods.

Global brands should be encouraged to manufacture in India provided they can offer India-specific pricing. They should not be allowed to remit royalties and profits out of the country earned from goods being consumed by Indians. This type of model is followed by China.

Law enforcement– Strict enforcement can stop the inflow of low-quality smuggled goods. Enforcement can be improved by using cutting-edge technology such as artificial intelligence, blockchain, and location technology.

Awareness generation– The Government must also increase consumer awareness so that people boycott smuggled, counterfeit and poor-quality goods.