last year the US Government had called New Delhi’s Nehru Place as one of the top 30 notorious IT markets of the world that deal in counterfeited goods. Nehru place is just a fraction of total grey market which operates in India.
According to a study commissioned by industry body Ficci on pirated goods, grey market thriving in places like Nehru Place; Richie Street and Burma Bazaar in Chennai; Manish Market, Heera Panna, lamington Road and the Fort District in Mumbai; and Chandni Chowk in Kolkata thrives on a more than Rs1,00,000 loss to the legitimate industry.
Setting aside monetary loss, this market is putting consumers life to threat and causing serious health hazards. Horrifyingly, around 20 per cent of total road accidents in India are either directly or indirectly attributed to usage of fake auto components. Thankfully, the original manufacturing segment is safe from counterfeits as their products are directly supplier to vehicle manufacturer. It’s the after-market which throws these scary figures.
The use of counterfeits resulted in 25,400 deaths and more than 93,000 injuries during 2009. In monetary loss terms, users are paying for an additional 109 million litres of petrol and 8 million litres of diesel per annum.
The frequent reports of people dying of illicit liquor consumption can be ascertained from the fact that illicit liquor constitutes 50 per cent of total consumption in India.
The Ficci study says that piracy caused an estimated loss to the tune of Rs1,00,000 crore to the industry in 2012. This caused an annual tax loss, both direct tax and indirect tax combined, of Rs26,190 crore to the government exchequer.
In terms of percentage of pirated goods, auto components sectors beats other sectors hand down at 29.6 per cent of total auto components market, followed by computer hardware at 26.4 per cent. The major sectors itself are marred by Rs72,969 crore loss on account of grey market (see table).
Grey market not only poses serious challenges to the government and industry but the effects are far greater on customers and society which can’t be measured in monetary terms. While, consumers face health and safety hazards, genuine manufacturers incentives and motivation to invest in business growth, research and developments also decline on account of vulnerability to fake products. The counterfeiter-criminal nexus results in growth of anti-national activities and organised crime which has far-reaching impact on national security and country’s GDP.
According to the study, high tax rates could be one of the reasons which thrive piracy market. High tax rates encourage pirates to take risk of pirating the genuine goods and make heavy incentives by invading taxes. However, how relevant is this relationship between tax and grey market is not ascertained in Indian context yet.