Ever-growing grey economy

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Updated: April 9, 2015 5:46:18 AM

The government needs to find ways to curb illicit markets in India given how they adversely affect two of its pet goals—stimulating the country’s...

The government needs to find ways to curb illicit markets in India given how they adversely affect two of its pet goals—stimulating the country’s manufacturing sector through the Make-in-India initiative and checking the generation of black money. A new Ficci study on the grey economy estimates that the loss to the manufacturing sector has increased by 44.4% in just two years, from R72,969 crore in FY12 to R1,05,381 crore in FY14.

The worst-hit segment is alcoholic beverages, which saw a 64% increase in grey market-share between 2010 and 2012—the industry saw a 151% increase in loss of sales to the grey market between FY12 and FY14, with the actual loss figures being R5,626 crore and R14,140 crore, respectively. Similarly, mobile phones registered a 111% increase in loss of sales to the grey market in the period, with losses increasing from R9,042 crore to R19,066 crore. The total loss of revenue to the government from the thriving grey economy from seven industries—alcoholic beverages, auto components, tobacco, computer hardware, FMCG packaged foods, FMCG personal goods and mobile phones—stood at a whopping R39,239 crore in 2014.

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Apart from revenue losses, the grey market weakens the economy by blatantly violating intellectual property rights and negating the gains from research & development. This discourages investors from putting in money in developing products and, thus, curtails the investment potential of the nation. Besides, the consumer has to contend with the value lost from purchasing sub-par goods. The numbers here show India needs to mount efforts—on stringent quality control, strengthening its IPR regime and a few key areas including taxation—to curb illicit markets.

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