Illicit trade in India: Economic impact, enforcement challenges and the path forward

Illicit trade in India has evolved into a complex economic, societal and national-security challenge that extends well beyond conventional smuggling. It encompasses counterfeiting, piracy, tax evasion, customs fraud, misdeclaration, unauthorised production and distribution, diversion from legitimate supply chains, grey-market activity and the trafficking of prohibited goods. These practices erode public revenues, weaken legitimate businesses, compromise consumer safety, distort competition and create financial opportunities for organised criminal networks.

This report, prepared by KPMG in India and FICCI Committee Against Smuggling and Counterfeiting Activities Destroying the Economy (CASCADE), examines the economic impact, enforcement challenges and path forward for addressing illicit trade in India. Based on extensive secondary research, publicly available government and regulatory data, international sources, academic literature, industry reports, court records and enforcement actions, the study provides a cross-sectoral assessment of illicit activity across six priority sectors: tobacco and cigarettes; alcohol and Indian Made Foreign Liquor (IMFL); agrochemicals and pesticides; fast-moving consumer goods (FMCG) and packaged foods; digital piracy and intellectual property theft; and petroleum and fuel adulteration.

It explains how supply-chain complexity, limited end-to-end traceability, fragmented regulatory oversight, price and tax arbitrage, information asymmetry, informal distribution networks and rapidly expanding digital channels enable illicit markets to persist. It also highlights how illicit networks adapt to enforcement and policy interventions by exploiting e-commerce platforms, social media, parcel and courier networks, fraudulent documentation, shell entities, fake invoicing, manipulated e-way bills, encrypted communications and technology-enabled financial transactions.

Sector analyses explore the distinct forms and consequences of illicit trade. In tobacco, the report considers cigarette smuggling, domestic tax evasion and regulatory disparities across product categories. In alcohol, it examines illicit liquor, state-level excise differences, prohibition-related grey markets, counterfeit products and diversion of Extra Neutral Alcohol. The agrochemicals chapter assesses counterfeit and spurious pesticides, risks to farmers, crop productivity, food security and export competitiveness. The FMCG and packaged-foods analysis covers counterfeit goods, grey-market diversion, unauthorised repackaging, expired-product re-entry and vulnerabilities across traditional retail, e-commerce and quick commerce. The digital piracy and intellectual-property chapter examines unlawful streaming, software piracy, counterfeit digital goods, cyber-enabled IP theft and risks to India’s growing digital economy. The petroleum chapter analyses subsidy-driven diversion, fuel adulteration, dispensing fraud, pipeline theft and supply-chain leakage.

It also considers the wider fiscal impact of illicit trade, including revenue erosion, enforcement and judicial expenditure, healthcare costs, weaker formalisation, reduced investment, lower productivity and declining confidence in regulatory institutions. It reviews India’s multi-agency enforcement framework and the growing shift towards intelligence-led, technology-enabled and financially focused investigations.