Shri Hansraj Gangaram Ahir, Honorable Minister of State, Ministry of Home Affairs, Government of India released FICCI CASCADE Report – “Need For Policy Reforms to Combat Illicit Markers”
13 October, 2016– FICCI, Federation House, Tansen Marg, New Delhi
“Safe borders are critical to nation; hence collaborative and cooperative measures are required as an anti-smuggling initiative in the country” stated Shri Hansraj Gangaram Ahir, Honorable Minister of State, Ministry of Home Affairs, Government of India, during the Seminar on Border Management and Illicit Trade organized by FICCI CASCADE in collaboration with the Faculty of Studies, Border Security Force. Hon’ble Minister congratulated FICCI for this initiative and urged for suggestions from FICCI to address the issue of illicit trade and smart border management.
The existence and operation of illicit markets such as smuggling has been an enduring problem that has escalated in scope and magnitude, impacting industries, government, economies and, the health and safety of the consumers. Moreover, smuggling operations have close links to terror organizations and criminal networks. In fact, it is today one of the biggest challenges faced by India and its industry, tarnishing the country’s image in the global arena. It is time that we, as a national and as a part of the global economy, call for stern and resolute counterstrike force against such ill-intentioned activities. This has several elements, starting with greater vigil at the borders.
This seminar, attended by over 150 BSF officers from across the country, addressed ways and means to combat illegal cross-border flows, facilitate cooperation and coordination among stakeholders and aimed at sensitizing the officers on the magnitude of the menace.
Dr. Didar Singh, Secretary General FICCI in his welcome address stated that border guards were critical stakeholders in combating cross border illegal trading activities. On one hand, while open borders facilitate travel and trade, they also make border control more challenging due to the emerging new forms of cross border crimes. Hence, it becomes vital that officers at the borders are prepared to identify possible suspects and their victims in such ill-intentioned crimes.
Mr. Deep Chand, Advisor FICCI CASCADE and former special commissioner of Police, New Delhi said “Illicit trade across the borders is impacting the social fabric of nations; India in particular is a victim of large scale smuggling. This web of illicit trade has entangled not only the legal industry and governments, but also the consumers who are exposed to grave risks to life and security”.
Mr. K K Sharma, IPS, Director General, Border Security Force said “the initiative taken by FICCI CASCADE is a most welcome step. BSF looks forward to many more instances of such collaborations in future as these activities will surely help the organizations and industries contribute to nation building”
Senior officials and eminent speakers from Border Security Force, Sashastra Seema Bal, Indo Tibetan Police Force, Directorate of Revenue Intelligence, Department of Homeland Security-Homeland Security Investigations, US Embassy etc were present to discuss and deliberate on issues such as Role of Enforcement Agencies and Challenges Encountered in Illegal Cross Border Trade; International Perspective on Illegal Cross Border Trade and Market and Technologies.
On this occasion, a report on Need for Policy Reforms to Combat Illicit Markets – Case Study on Tobacco industry was also released. The report talks about trade of illicit cigarettes, which constitute a significant component of the tobacco industry and is leading to the loss of revenue to government, loss of business to the legitimate industry, livelihood opportunities, adversely impacting farmers, besides being a threat to national security.
Key findings of FICCI CASCADE Report – Need For Policy Reforms to Combat Illicit Markers (Case Study on Tobacco Industry) are as follows:
- Smuggled cigarettes consumption has increased by over 90% (12.5 to 23.9 billion sticks) in the last 10 years
- 74% smokers willing to switch to cheaply-priced smuggled or illegal cigarettes because of higher taxation on legal cigarettes
- Over 56% smokers prefer attractive packaging of foreign smuggled brands which doesn’t adhere to Indian regulations like 85% health warning
The report highlights that high and discriminatory taxes on legal cigarette industry in India are the primary drivers of illicit trade. Today, Indian smokers find the cheaper alternatives – smuggled cigarettes – more attractive and as per the report there has been over 90% increase in consumption of smuggled cigarettes in the past 10 years. The illicit cigarette market in India is growing steadily and has increased from 11.1 billion sticks in 2004 to 23.9 billion sticks in 2015. Due to the rising prices of cigarettes, 74% smokers are willing to switch to cheaply-priced smuggled or illegal cigarettes. The report also found that over 56% smokers prefer the attractive packaging of smuggled foreign brands that do not carry health warning as mandated by Indian regulatory environment.
Rising consumption of illicit cigarettes in India
Source: Tobacco Board (GOI), USDA and Industry estimates
As per FICCI CASCADE, the total loss to the government estimated for 2014, on account of the illicit markets in respect of the seven sectors manufacturing industry is Rs 39,239 crores. Amongst the various sectors, the maximum revenue loss to the exchequer on account of counterfeiting and illicit trade is attributed to tobacco products at 23%, estimating a revenue loss of Rs. 9139 crores.
According to studies quoted in the report, in Canada, taxes have been shown to increase the size of black markets and to cause economic activity to move underground as price-sensitive individuals look for creative ways to evade taxation. Studies have shown that in the tobacco industry, consumers’ willingness to switch from smoking legally purchased cigarettes and tobacco to contraband products increases with tax hikes.
An econometric analysis by Jean-Francois Ouellet, Associate Professor of Marketing at HEC Montreal, and his co-authors Mariachiara Restuccia, Alexandre Tellier and Caroline Lacroix, on the consumer behaviour in Canada found that each additional dollar in taxes raises the propensity to resort to consuming contraband cigarettes by 5.1%.
A Taiwan study says for an increase of each Taiwanese dollar (TN$) in the price of legal cigarettes, the probability of a consumer (who previously did not smoke smuggled cigarettes) to shift to smoking smuggled cigarette increases by 26.1%.
While the consumption of illicit cigarettes is going up, use of tobacco in legal cigarettes is steadily going down. From 86 million kg in 1981-82, use of tobacco for legal cigarettes has gone down to 62 million kg in 2014-15.
The growth in consumption of illicit cigarettes is accompanied by a decline in the use of tobacco in legal cigarettes. In India, legal cigarette constitutes 11% of the total tobacco consumption in volume. Illicit cigarettes constitute 4% and the rest 85% come from chewing tobaccos, bidis, khaini, cheroot, hookah tobacco, leaf tobacco, zarda, kimam, surti and snuff etc. This is in sharp contrast with the trend in Western countries where smoking of cigarettes constitutes 90% of the total tobacco consumption. In terms of tax revenue, legal cigarettes contribute the bulk, 87% of the total excise revenue, while the non-cigarettes products contribute only 13% to revenue.