Here is a statistic that a consumption state like Kerala should worry about. The size of the illicit market for five key industries in India—FMCG (packaged foods, FMCG (personal and household care), alcohol, tobacco, and textiles and apparel) —is ₹7,97,726 crore, nearly ₹8 lakh crore. 

These are figures put out by FICCI-CASCADE (Indian Chambers of Commerce and Industry - Committee Against Smuggling and Counterfeiting Activities Destroying the Economy) and taken from various official sources like Directorate of Revenue Intelligence (DRI) and National Crime Records Bureau. 

The crucial finding that Kerala should be concerned about is that the illicit market in these five categories has expanded faster in rural India, especially among the growing classes of middle- and lower-income groups.

According to the latest Household Consumption Expenditure Survey, Kerala has the highest monthly per capita rural consumption expenditure in the country. If the national average for rural consumption is ₹4122, in Kerala it is ₹6611. The other state whose rural population spends anywhere near Kerala is Punjab: ₹5817.

"Illicit trade is a low-risk and high-reward criminal activity. There is no manufactured product, the illicit of which is not available in the market," said P C Jha, FICCI CASCADE advisor and former chairman of the Central Board of Indirect Taxes and Customs. 

Jha said the size of the illicit market in the personal and household care goods, which is ₹73,813 crore, was 34.4% in 2022-23, the last fiscal for which figures are available. The illicit market for textiles and apparel is ₹4,03,915 crore, and this 55% of the total textiles and apparel market. Nearly 35% of the alcoholic products are fake. It is 35.4% in the case of antibiotics, a fact that should automatically switch on a siren and red light for Kerala, as it is the largest consumer of drugs in the country. In both the IT software and music industries, the share of fakes is 40%.

Jha, who was a former chairman of the Central Board of Indirect Taxes and Customs, said that the illicit market was a huge drain on government resources. He said that in eight years from 2011-12 to 2019-20, the tax loss to the government in five sectors (mobile phones, household and personal goods, tobacco products, alcoholic beverages, and packaged food) increased by nearly 60% to ₹24,607 crore; from ₹33,644 crore to ₹58,251 crore.

Deep Chand, the former special commissioner of police, New Delhi, said that 39% of counterfeit products are sold on e-commerce platforms. The main products commonly bought by consumer through e-commerce are footwear, clothes, handbags, electronics, watches, cosmetics. Most smuggled items as per DRI's 2024 report are: gold (1.32 tonnes), cigarettes (₹179 crore), and 11 narcotics items weighing 8.2 tonnes, and valued at ₹2242 crore.

Industries Minister P Rajeev said that the state government was seized of the matter. "The smuggling of illicit and counterfeit goods poses serious challenges to our society. It compromises public safety, hampers economic development, and, in some cases, even fuels the financing of terrorist activities," he said, and added, "The government is leveraging advanced technologies such as the deployment of drones for real-time surveillance and tracking of illicit activities, particularly along vulnerable coastal and border areas." 

Government policies, too, play a big role in instigating and restraining smuggling activities. T Tiju, the commissioner of customs, Kochi, said that gold smuggling showed a dramatic fall after the centre reduced import duty on gold and silver to 6% from 15% in 2024. "This slash in import duty removed all the benefits for a smuggler. His margin vanished," Tiju said. If the seizure of gold was 3500 kg in 2023, it dropped to below 1000 kg in 2024. 

The huge profit margins are now in cigarettes. "There is a sudden spurt in cigarette smuggling after gold lost its smuggling value," Tiju said. If 6.8 crore fake cigarettes were seized by the Customs in 2022-23, the number shot up to 9.1 crore in 2023-24. In India, cigarettes are slapped a 28% GST, and along with additional levies and cess, the total tax burden results in a total tax burden of approximately 53%, a margin that smugglers try to cash in on with duty-free ciggies.