Anti- Counterfeiting

Almost 25% of the products sold on Indian e-commerce & auction sites are fakes. Fake products not only cause brand reputation damage but also pose serious health risks for unsuspecting customers. The overall counterfeit market is reported to be increasing at 44% a year about 4 times the speed of FMCG market. It was estimated to be worth around 1.05 lakh crore market in 2014. India is the world No:1 for manufacturing of fake medicines and fake medicines are known to kill more people in a year than those who have died in the past 40 years as a result of terrorism. “40 years of terrorism has killed about 65,000 people, while 500,000 people worldwide, die from counterfeit medications each year.

“Indian pharmaceutical companies have suggested that in India’s major cities, one in five strips of medicines sold is a fake. They claim a loss in revenue of between 4 percent and 5 percent annually. The industry also estimates that spurious drugs have grown from 10 percent to 20 percent of the total market.”

It is an irony that the drug regulators in India mostly keep demonstrating an ‘Ostrich Syndrome’ – refusing to acknowledge this menace that is blatantly obvious. They apparently believe that no health hazards due to prevalence of fake drugs exist in the country. Though the Government of India tends to wash its hands off on the very existence of this menace with the survey reports as above, following are just a few examples from other reports raising concerns on this critical issue in India:

According to a study of the Chamber of Commerce and Indian Industry (Assocham), about 60-70% of dietary supplements sold in India are counterfeit, unregistered and unauthorized. The Indian market for dietary supplements is valued at approximately $ 2 billion and is expected to reach $ 4 billion by 2020. Vitamins and minerals currently account for 40% of the market, ahead of herbal supplements (30%), probiotics (10%), omega-3 fatty acids (5%), and proteins, amino acids and other essential elements representing the remaining 15%.

In India, the top 7 counterfeit products market in the decreasing order of notoriousness are Auto Components, Alcohol, Computer Hardware, FMCG Personal goods, FMCG Packaged goods, Mobile phones, and tobacco.

The ASSOCHAM found that counterfeiting and piracy has robbed the Indian government of US$31.25bn in lost tax revenue. Federation of Indian chambers of commerce and industry (FICCI, 2012) has conducted a nation-wide study on Tax evasion in seven key industries. Result shows that the overall sales losses to Indian industries are Rs. 72,969 crore and overall tax loss to Indian Government is Rs. 26,190 crore(FICCI,2012).

Nearly 30-40% of the automobile components in the market in India are counterfeit. The Automotive Component Manufacturers Association of India (ACMAI) has reported that up to 20 percent of all road accidents that occur in India are due to counterfeit auto parts. The failure of counterfeit auto parts made from sub-standard materials without any safety testing and certification is a horrifying prospect. It is forecasted that the auto-industry in India can lose upto Rs 32,431 Crore as a result of fake auto-components; while the government can lose upto Rs 9,729 Crore in taxes from these fake auto-components.

People using counterfeit parts have to spend more on 109 million liters of petrol and 8 million liters of diesel every year – this is an indirect cost that they end up paying. Counterfeit parts were directly or indirectly one of the causes behind  20% of road accidents in India causing 25,400 deaths and more than 93,000 injuries. The U.S. National Highway Traffic Safety Administration warned motorists that counterfeit airbags fitted by many of them may not inflate or fail to inflate in time of need. Distribution and retailing of fake, recycled or duplicate clutch plates, brake pads, radiators, windscreens, accessories and spares of two-wheelers, cars, trucks, and buses is a big business. These fake components are similar looking, but 20-30% cheaper than the genuine parts. This makes it difficult to control their unauthorized sale. Air filters, bearings, spark plugs and brake pads are among the among the hottest selling counterfeit products. Retailers and mechanics prefer them because of the higher margin. Sometimes a consumer knowingly buys a fake that costs half of what a brand, an original product would cost. Surprisingly 80% of the consumers do not even realize this at the time of making a purchase. They continue to believe that they have bought the original.

Only 50% of liquor consumed is produced legally in India. This means is that everything else is either spurious, substandard, home liquor or people are just not bothered where it comes from. Over 30 percent of the alcohol consumed worldwide is unregistered. Counterfeiters typically refill empty bottles of imported wines and spirits from clubs, bars and five-star hotels with cheaper Indian whiskeys and try to pass them sell them off as genuine scotch. There are also instances where industrial alcohol or alcohol that isn’t fit for human consumption has found its way in shops and roadside bars. According to a study, overall liquor consumption in India may triple in the next three years. It will shoot up to 20,000 million liter from the current 7,000 million liter. This means a revenue of Rs 2 lakh crore from the alcoholic beverage market in the next three years. India already is one of the world’s largest alcoholic beverage market. India is one of the world’s biggest producers of FMCG products. The burgeoning USD 13 billion FMCG sector in India — the fourth largest in terms of market size is expected to grow USD 33 billion industry by 2015 and USD 100 billion by the year 2025. Contrary to popular myth, rural India with more than 70% of the Indian population (700 mn consumers) accounts for 50% of the FMCG sales. Food and personal care products together make up two-thirds of the FMCG sector’s revenue that contributes nearly 2.5% of the country’s GDP.

Almost 15 percent of consumer goods worth around Rs 15,000 crore– sold in India are fake. Name any major branded soft drink – chances are that it may be fake. 10% – 30% cosmetics, toiletries and packaged food are duplicates. The bigger the company and fast selling the products, better the chances of its product being copied and counterfeited. Advances in color photocopying, duplication, and printing technology have made it possible to make such ‘perfect’ replicas that even the original manufacturer would not be able to spot the difference. Fake products have the same name, color, pattern or design on the packaging. Even the same name and address as the manufacturer remains the same and in the same font and style.

The estimated annual tax loss to the Indian government was estimated at INR 39,239 crore in a FICCI CASCADE study in 2014. The launch of “Make in India” initiative by the Indian government intends to transform the country into a manufacturing hub. The plan has witnessed early success and has attracted foreign investments. The campaign, needless to mention, requires authentication of products to protect it from the perils of counterfeiting and ensure making it a complete success in the times to come. Owing to the intricacies and mounting issues posed by counterfeiting and smuggling, there has emerged a parallel economy that operates alongside, but at the same time is increasingly overlapping with the legitimate economy. This parallel economy results in:

  • Distortion of markets;
  • Regulatory burden;
  • Funding criminal organizations or international terrorist groups and
  • Promotion of global economic disparities.

Sale of counterfeit goods via social media: up 15%.  Sale of counterfeit goods via online auction sites: up 2%.  524m ads were disabled by Google in 2014, up from 350m in 2013, for promoting counterfeit goods, malware and other violations of its policies. More than 7,000 advertisers were banned by Google for promoting counterfeit goods in 2014. Facebook took down over 3,000 fraudulent listings in a 2.5 day period. 32% of consumers and 33% of business managers believe the internet of 2020 will be dominated by social media sites. Counterfeit goods are as profitable for criminal gangs as illegal drugs, bringing returns of up to 900%.

Within India, Delhi is the main transit point for a wide range of counterfeit consumer electronics, computer accessories, mobile phones and auto accessories. Gaffar Market is one of Asia’s largest markets for counterfeit and smuggled electronic appliances, mobile phones and cosmetic items while Kashmere Gate is one of Asia’s largest auto parts markets. Nehru Place leads in fake computer hardware and pirated software. Nearly 75 percent of all the fake goods in India are either produced or transit from Delhi.

Globally, customs officials seize With 4.7 billion online consumers predicted by 2020, the explosion of the internet as a core channel for customer engagement has created huge opportunities, but also serious and continually evolving threats that cost companies worldwide billions of dollars in revenue every year. 78% of consumers would shun a brand if they found themselves on a bogus website pertaining to that brand even though the company itself was not negligent – and 54% felt certain about this. Consumers will avoid a brand for two years after a bad experience, and 45% of them share bad experiences on social media. Small and medium enterprises (SMEs) have been recognized by development experts as a critical engine of economic growth and a major factor in promoting private sector development. This is true in India, where SMEs play a critical role in the economy, accounting for 40% of total exports, 45% of its manufacturing output, and employing nearly 40% of the domestic workforce. However, SMEs only contribute 17% to Indian GDP due to low productivity. Interestingly, an increasing body of evidence shows that SMEs, especially young firms, contribute greatly and increasingly to the innovation system by introducing new products and adapting existing products to the needs of customers.

Those SMEs that do leverage IP growth strategies report faster growth, and higher income and employment than those that do not. One study on the European Union showed that SMEs in the ICT sector that rely on IPR reported 10% more growth in turnover, market share, and employment, respectively, than those that had not used IPRs. Ironically, this important segment of the economy is the segment least able to afford to defend their intellectual property rights. In this environment, only an effective system of legal enforcement of rights can benefit and stimulate the IPR rights of SMEs.

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