The illicit market across five Indian key industries, including mobile phones and alcoholic beverages, was valued at Rs 2.60 trillion in 2019-20, with the FMCG segment accounting for three-fourth of the total value, according to a FICCI report.
The estimated tax loss to the government from these five sectors – others being FMCG-household and personal goods, FMCG-packaged foods and tobacco products – accounted for Rs 58,521 crore. The unlawful trade in these sectors resulted in an estimated legitimate employment loss of 15.96 lakh, the report by FICCI’s Committee Against Smuggling and Counterfeiting Activities Destroying the Economy’s (CASCADE) said.
The FMCG industry (household and personal goods, and packaged foods) accounted for legitimate job losses of 10.93 lakh, which is about 68.5% of total job loss across the five industries. This is because the sector is more labour-intensive, with a relatively higher illicit market size.
According to the report titled – ‘Illicit Markets: A Threat to Our National Interests’ – two highly-regulated and taxed industries, tobacco products and alcoholic beverages, accounted for nearly 49% of the overall tax loss to the government.
The impact of the illicit market of these industries on the economy is “pervasive and significant” due to their backward linkages with other sectors, resulting in a multiplier effect. (Multiplier effect measures the total impact on the economy per unit change (gain or loss) in demand of the industry).
Higher the multiplier, higher is its overall effect on the economy, it added.
While the FMCG packaged foods industry held the highest share of illicit market at Rs 1.42 trillion, this was followed by FMCG household and personal goods industry at Rs 55,530 crores, alcoholic beverages at ?23,466 crores, tobacco products industry at Rs 22,930 crores, and mobile phone industry at Rs 15,884 crore.
In percentage terms, the FMCG household and personal goods industry topped the chart with 34.25%, followed by FMCG packaged foods industry at 25.09%, tobacco products industry at 20.04%, alcoholic beverage industry at 19.87%, and mobile phone industry at 7.56%.
The maximum of 7.94 lakh jobs were lost in the FMCG packaged foods industry, followed by tobacco industry (3.7 lakh), FMCG household and personal goods industry (2.99 lakh), alcoholic beverages industry (97,900), and mobile phone industry (0.35 lakh).
The tax loss to the government due to illicit trade in these five sectors stood at Rs 17,074 crore from FMCG packaged foods, Rs 15,262 crore (alcoholic beverages), Rs 13,331 crore (tobacco products), Rs 9,995 crore (FMCG household and personal goods), and Rs 2859 crore (mobile phones).
The report states that the illicit market for tobacco products has increased from Rs 21,811 crore in 2018-19 to ?22,930 crores in 2019-20. The illicit market percentage has also increased from 19.88% in 2018-19 to 20.04% in 2019-20
The illicit markets in the mobile phone segment results in a Gross Value Added (GVA) loss of ?4,694 crore and a legitimate employment loss of 35,000 lakh to the industry. Including Goods and Service Tax (GST) of 18% on these devices, the resulting tax loss to the government was at ?2,859 crore.
The illicit trade in FMCG (household and personal goods) results in a GVA loss of Rs 55,530 crore and legitimate employment loss of 2.99 lakh to the industry. Including GST, the resulting tax loss to the government is Rs 9,995 crore.