Column: Shake off that ‘fake’ addiction

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SummaryThe total loss on account of counterfeiting in 2012 for seven critical sectors is Rs 73,000 crore

In 2005, the Organisation of Economic Co-operation and Development (OECD) estimated that international trade in counterfeit and pirated products was nearly $200 billion. A study by Business Action to Stop Counterfeiting and Piracy, which is under the International Chamber of Commerce in 2008 estimated the impact of smuggled/counterfeited products on the G-20 economies to be a staggering $455-650 billion. It has been projected that by 2015 the impact of smuggled and counterfeited goods will be between $1,220-1,770 billion. This is a serious issue and it will take concerted action by the society and the government to deal with this growing menace.

The Indian economy is growing at a fast pace, but as is apparent, so is the menace of smuggling and counterfeiting. The socio-economic impact of these anti-social activities in seven critical Indian sectors namely auto components, alcohol, computer hardware, fast-moving consumer goods, mobile phones and tobacco. While illegal trade in auto components causes a loss of R9,198 crore to the industry, other figures are equally worrisome. The loss is R5,626 crore in alcohol, R4,725 crore in computer hardware, over R35,000 crore in FMCG (which includes both personal and packaged goods), R9,042 crore in mobile phones and R8,965 crore in tobacco. The total loss calculated from all sectors in 2012 alone is nearly R73,000 crore.

The losses to the government are steep as well. There is a loss of R3,504 crore in direct taxes and R22,686 crore in indirect taxes, amounting to a total tax loss of R26,190 crore to the government of India. The lack of adequate legislation, regulation, and particularly, enforcement and penalties are often invoked as weaknesses that smugglers and counterfeiters exploit. This is especially true for the legal systems of many economies in transition or in the development phase. There is also the need for greater cooperation between government, law enforcement agencies and the private sector companies to combat this global malaise.

If both the industry and the government are losing money, how is the consumer gaining? Basically, counterfeiting is bereft of any qualitative property. The producers of illegal goods are not interested in creating quality products for the consumer, but to produce substandard goods in bulk which are attractive to consumers because of their discounted price. This then has an adverse effect on the health of consumers, particularly those who live at the margins. In three segments particularly auto parts, alcohol and tobacco,

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