Beating the black economy | The Financial Express

Beating the black economy

Consumer awareness on the ill-effects of counterfeit and smuggled goods is central to curbing the black economy; policies and enforcement alone can’t move the needle

Beating the black economy
Per a 2020 World Economic Forum report, illicit trade is estimated to result in a loss to the extent of $2.2 trillion to the global economy—a humongous 3 % of the global GDP.

By Najib Shah

It is universally agreed that smuggling and counterfeiting are bad. They result in the evasion of laws, leading to loss of revenue, generation of unaccounted money used for nefarious purposes, and loss of legitimate jobs. Per a 2020 World Economic Forum report, illicit trade is estimated to result in a loss to the extent of $2.2 trillion to the global economy—a humongous 3 % of the global GDP.

India has not been spared from this menace. Its geographical location makes it vulnerable to the smuggling of drugs. India continues to be a major consumer of gold, and the insatiable demand for gold and the ingenious methods of concealment being adopted mean challenges for the enforcement agencies. Smuggling of small quantities of other sundry goods also takes place, ranging from household to electronic goods. There is also the problem of evasion of local taxes by the domestic industry. The enforcement agencies under GST have been regularly in the news for huge detections of cases—from the use of fake invoices to illegally discharge duty liability to outright removal of goods without documentation.

Counterfeiting also poses problems for the country. This involves the misuse of trademarks and logos—goods meant to resemble the original with neither the safety standards nor guarantee of the original, and sold at lower prices. This is no better than the theft of intellectual property. In this case, too, there is a loss of revenue and employment. Genuine industry gets hurt in all these cases.

Professor Arun Kumar, a leading authority on the black economy, has estimated the size of India’s black economy to be about 62% of GDP, generating (2016-17 prices) about `93 trillion of revenue. To put this in context, this is larger than the income generated by agriculture and industry put together and than the size of government spending (both the Centre and the states). Kumar estimates that, because of its size, the country’s economy has been losing on an average 5% growth since the mid- 1970s. What this means is that India could have been the world’s second-largest economy; per capita income would have been $11,000 instead of $1,500.

What are the reasons for tax evasion? Is it the tax and legal structure, the lack of simplicity of the laws and the consequential difficulty in complying with their requirements, the lure of easy money, inflation, a significant informal economy, social and educational levels of the population, and the lack of integrity—or a combination of all these factors? In India’s case, it would indeed appear to be combination of all these factors.

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Enforcement agencies are doing a splendid job of detection, but they will be hard-pressed to eradicate this danger. This will require the concerted effort of all the stakeholders—the policymakers, the enforcement agencies, the judiciary, and most importantly, the general population at large—the consumer.

It is in this context that FICCI’s think-tank, Committee against Smuggling and Counterfeiting Activities Destroying the Economy (CASCADE), held its annual two-day conference, Movement against Smuggled and Counterfeit trade (MASCRADE) in late September 2022. The theme of the conference, ‘Unleashing the power of consumers in the fight against smuggling and counterfeiting’, was a clear recognition of the reality that it is the consumer’s demand that fuels supply—and where there is a gap between demand and supply, it is met by illicit supplies. The focus of all the sessions was on understanding and addressing the psyche which drives the consumer to satisfy their requirements through the purchase of illicit goods.

The conference highlighted the need to engage consumers, influence public opinion, and understand demand behaviour. It underscored the need to have in place measures for safeguarding consumers from spurious and fake foods—goods, which in the absence of any manufacturing standards, could pose health and safety issues. There was a recognition that India could not lose the revenue that illicit activities generate. Given the security challenges that the country faces, this is money that can be used for anti-national activities. The conference emphasised the need for urgent action against organised crime—a close consequence of illicit trade.

Most citizens would not like to break the law or be associated with anti-national activities. It is essential that we acknowledge this, hence the need for consumer awareness. Something as simple as insisting on a bill would sound a death knell for these illicit activities. These activities thrive on the consumer’s desire to save money without thinking of their own safety, or worse, the nation’s security. If we can ensure that we can jagao the grahak, empower them, and shake them up from their slumber into realising that they can be active partners in the fight against illicit trade and nation-building, then the war can be won.

It is not going to be easy. But conferences such as MASCRADE 2022 help in creating the enabling environment.
This is a fight that the nation cannot afford to lose.

The author is Former chairman, Central Board of Indirect Taxes & Customs, and member, FICCI- CASCADE

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First published on: 18-11-2022 at 04:00 IST