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The country cannot become a developed nation while smuggling and counterfeiting fuel a parallel economy. Combating illicit trade must become a national economic priority

By T Muralidharan

On June 30, Hyderabad hosted an important seminar on “Illicit Trade: A Unified Approach to Counter Smuggling and Counterfeiting”, organised by FICCI CASCADE (Committee Against Smuggling and Counterfeiting Activities Destroying the Economy). The seminar brought together the Deputy Speaker of the Telangana Assembly, senior government officials, enforcement agencies, policymakers, and industry leaders to deliberate on one of India’s fastest-growing but least discussed economic threats.

The seminar reinforced one uncomfortable reality: India continues to treat illicit trade as a business problem when it has become a national economic disaster.

The Hidden Economy

Most people associate illicit trade with fake luxury handbags or pirated movies. That perception is dangerously outdated.

Today, illicit trade has infiltrated almost every sector of the economy — medicines, cigarettes, alcohol, packaged foods, household products, electrical goods, auto components, textiles, software, pesticides, seeds, mobile phones, stamp paper, and even life-saving pharmaceuticals. The consumer buying these products often has little idea whether they are genuine or counterfeit.

Shocking data on illicit trade

• Illicit trade is bigger than the economy of most countries. Global illicit trade today is estimated at 3% of global GDP or $3.75 trillion. If illicit trade were treated as a country, it would rank approximately as the 6th largest economy in the world, incidentally, just behind India
• Global Illicit trade has expanded 21-fold in just 21 years
• With an estimated value of Rs 11.76 lakh crore, the illicit trade economy in India is roughly equivalent to the entire economy of Kerala
• Illicit trade (Rs 11.76 lakh crore) is about 96% of the entire capital expenditure Budget (Rs 12.2 lakh crore). It is almost twice the Defence Ministry’s Budget (Rs 6–7 lakh crore)
• A FICCI CASCADE study of five sectors has estimated annual tax loss of Rs 58,251 crore
• Legitimate businesses lost Rs 2,60,094 crore in sales to illicit trade across just five sectors
• Smuggling alone resulted in an estimated loss of 16.36 lakh employment opportunities
• 20% of road accidents and nearly 50% of fatal road accidents are attributed to fake auto parts
• There is virtually no manufactured product whose counterfeit version is not available in the market
• 65% of consumers knowingly purchase counterfeit goods. Purchasing products with a proper bill could solve nearly 80% of the problem, but we don’t do it
• Global Illicit Trade Environment Index (2025) is published by Economist Impact and commissioned by TRACIT (Transnational Alliance to Combat Illicit Trade). India is ranked 58th out of 87 countries
• On Global Organized Crime Index (2025) published by the Global Initiative Against Transnational Organized Crime (GI-TOC)India’s criminality ranking is 58th out of 193 countries

This is no longer a shadow economy. It is becoming a parallel economy.

Damage Goes Far Beyond Revenue Loss

The first victim is the citizen. A counterfeit medicine kills, a fake electrical cable is the most common cause of fire, spurious seeds can destroy an entire crop, leading to farmer suicides.

The second victim is honest industry. Companies investing in quality, research, innovation, and compliance are forced to compete against businesses that evade taxes, ignore regulations, and bear none of the costs of legitimate enterprise.

The third victim is the government. Every smuggled consignment results in the loss of Customs revenue.
The fourth victim is employment. Smuggling and counterfeiting reduce legitimate production, discourage investment, and ultimately destroy jobs.

The Black Money Machine
Perhaps the greatest danger of illicit trade is not the counterfeit product itself. It is the black money that it generates. This black money does not remain idle. It fuels corruption and fosters collusion between political actors, enforcement agencies, and illegal trade networks.

Moving in Wrong Direction

One might assume that stronger laws and greater awareness have reduced the problem. Unfortunately, the evidence suggests otherwise.

In several sectors, the illicit market now represents a disturbingly large share of total trade. Textiles and apparel, household goods, tobacco products, alcohol, computer hardware, and packaged foods have all witnessed substantial growth in illicit market penetration.

The worrying conclusion is obvious. The problem is growing faster than our ability to contain it.

Crime Continues to Pay

Perhaps the most important discussion during the seminar centred on enforcement. Contrary to popular belief, India’s challenge is not the absence of laws. It is the absence of an integrated enforcement architecture.

Depending on the nature of the offence, cases may fall under the Trade Marks Act, Copyright Act, Customs Act, GST laws, Food Safety regulations, Drugs laws, State Excise laws, Legal Metrology legislation or general criminal law.

Each has its own investigating agency. Each follows different procedures. Each reaches different courts. Each progresses at a different pace. The consequence is predictable. Prosecution becomes fragmented. Convictions take years. Compliance weakens.

Existing penal provisions under several laws are inadequate, and delayed prosecution significantly reduces their deterrent effect. Except for Customs law, the penalties are meagre and jail terms are often less than three years. Added to this is delayed justice. It is, therefore, hardly surprising that illicit trade is increasingly viewed as a low-risk, high-profit business.

Growth Needs Legality

India has set itself an ambitious goal of becoming a developed nation by 2047. That aspiration requires more than infrastructure, manufacturingand digital transformation. It requires trust. Investors invest where the rule of law is respected. Innovators innovate where intellectual property is protected. Consumers spend confidently where products are genuine. Manufacturing thrives where honest businesses are not undercut by illegal competitors. A developed economy cannot coexist comfortably with a rapidly expanding illicit economy.

How do we go forward from here? This is a shared responsibility. One encouraging aspect of the Hyderabad seminar was the remarkable alignment between the government and industry on the need to act. Contrary to perception, this is not an issue where regulators and businesses stand on opposite sides, because everyone loses: government loses revenue, industry loses sales, consumers lose safety, workers lose jobs, society loses trust.

No individual company — not even one as influential as a FICCI member — can fight organised illicit trade alone. FICCI, CII, NASSCOM, and other trade bodies need to set up advocacy centres to help their members

A Youth Challenge Too
India today faces another structural challenge. Around 40 million educated young graduates are in the labour market, desperately seeking sustainable jobs, while the creation of graduate-level jobs has not kept pace. This gap can leave some young people vulnerable to recruitment into illegal supply chains, counterfeit distribution networks, cyber-enabled fraud, and other organised criminal activities.

The long-term answer lies in expanding legitimate employment and legitimate enterprise while making illicit economic activity far less attractive and far more risky.

Four Reforms India Should Consider

The time has come for bold structural reforms. First, organised illicit trade should be treated as a serious economic crime, on a par with the drug trade. Financial penalties should be similar to those applicable under Customs laws.

Second, India should establish Special Illicit Trade Courts, on the lines of commercial courts and consumer courts, to ensure swift investigation, prosecution, and adjudication. Delayed justice weakens deterrence.

Third, India should consider creating a National Illicit Trade Enforcement Agency with specialised expertise, integrated intelligence capabilities, and nationwide jurisdiction to coordinate action across agencies and States, similar to the Narcotics Control Bureau.

Fourth, India must embrace technology comprehensively. The very technologies being exploited by illicit networks can become our strongest allies. Artificial intelligence, advanced analytics, blockchain-based traceability, digital authentication, smart packaging, QR code verification, supply chain intelligence, real-time data sharing, and predictive risk analysis are already transforming how governments and businesses detect, track, and prevent illicit trade.

The future battle against counterfeit goods will increasingly be won through intelligence, collaboration, and technology. India cannot aspire to become a $10 trillion economy while simultaneously allowing a multi-trillion-rupee illicit economy to flourish.

The objective is to build an India where honest enterprise is more profitable than criminal enterprise, where lawful trade is protected, where innovation is rewarded, and where the rule of law becomes one of our greatest competitive advantages. Only then will India’s economic transformation be complete.

(The author is chairman of TMI Group)