How does counterfeiting affects the economy?

Counterfeiting is a trillion-dollar illegal business having its presence in almost every part of the world. Today, counterfeiting is posing a threat to not just the consumers but also to the economic growth of the nations.

The menace of counterfeiting has reached a global value of trillions of dollars. Counterfeit products are not just posing a threat to the legitimate manufacturers but also to consumers. We often come across news reports from different parts of the world where consumers have been badly affected by fake products.

As per a joint report by OECD and EUIPO, “Global sales of fake and pirated goods have soared to 460 billion euros ($522 billion) a year, amounting to a whopping 3.3 percent of world trade.” The report also states the nations most affected by counterfeiting which includes the United States, Japan, South Korea, and the EU states. However, the effects of counterfeiting are not just visible in developed countries but are also hampering the growth of the developing world.

According to ASPA the value of counterfeiting in India has reached one lakh crore annually and is causing big trouble to the national economy.

Let’s discuss some of the negative impacts of counterfeiting on the economy of the country.

  • Evasion of taxes: The growing counterfeit products industry thrive in the market without paying taxes to the government. Unlike genuine manufacturers, they evade taxes that are necessary for the government exchequer. This prevents the government to sufficiently spend on welfare projects and schemes.
  • Rise in unemployment: Counterfeit products cause monetary losses to the manufacturers. Due to the slowdown, they are not able to recruit new employees. The financial instability of the industries creates massive unemployment which is linked indirectly to the problem of fake products.
  • Diminishes foreign investment: It has been generally seen that countries with weak IP laws and poor regulatory measures become the breeding ground for counterfeit activities. Such countries blur their chances of foreign investments. Counterfeiting diminishes the chances of foreign direct investments and thus block the economic growth of a country.
  • Promotes other black-market activities: Counterfeiting fuels other black-market activities and is a lucrative business for organized criminals. With the money acquired from the sale of counterfeits, they fund their vast network, which is involved in drug trafficking, human trafficking, illegal arms, prostitution, etc.

Finally, we can conclude that counterfeiting has multiple negative effects, which are very harmful to the economic growth of the country if not checked on time by authorities and the respective governments of their countries.

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