Loot, and the industry's feeble attempts to fight back

India "imports" adhesives at half the price of the top brands. Many local manufacturers repack them and sell these. And yet, the top adhesive brands in India have managed to stay ahead of this sort of shenanigans. Ramu Ramanathan tries to make sense of the "lut" that passes off as business in India

15 Feb 2024 | By Ramu Ramanathan

India "imports" adhesives at half the price of the top brands

I am reading The Anarchy: The Relentless Rise of the East India Company, a book written by the historian William Dalrymple. It is the story of how the Mughal empire disintegrated and was toppled by the East India Company. An evil tale of loot. The roots of the word “loot” Dalrymple tells us lies in Anglo-Indian, the argot that developed during the British colonisation of Mughal India. In the Hindustani language, “lut” referred to the spoils of war pillaged from an enemy.

Why am I sharing this, cause the "lut" continues.

There has been a big fraud which was masterminded by a paper dealer after the purchase of bulk papers from Morbi. As per a senior paper official, "This paper dealer slipped UG (underground). Now he has been arrested by Surat police."

This is a moral victory for the Morbi Paper Mill Association. There are more than 45 paper mills in Morbi Gujarat and they have been impacted by the "loot".

One of the rare occasions when crime did not pay.

On another front, I bumped into an import consultant at a packaging show at the Jio Centre. Smooth, suave, savvy.

He told me about the elaborate "lut" of products like plates and plates as well as blankets and adhesives which are being imported into the country. He said, "I have been tracking and tracing import data through the official channels as well as collection of invoices." The modus operandi is as follows: Under invoicing, deliberately incorrect classification and nomenclature and corruption.

The import consultant told me there is a League of Consultants and they are present to help. 24/7.

What sort of help, I asked.

He said, quite simple. The League of Consultants can ensure no duty is levied on the product. The League of Consultants can ensure the prices are lower than the prices of the reputed brands. And the League of Consultants can do a cost to cost conversion, and ensure there is a significant difference.

I gasped. 

He said, Relax. After all, this is not the first time the print and packaging industry is facing this. But over the years the extra plates and blankets and adhesives are on the rise. 

All thanks to the League of Consultants.

Yes, indeed said he. And shared with me a case study.

Last year, a suspicious shipment was traced to an address. When government officials visited the said address, it was an empty flat in an obscure suburb with zero occupants. 

Did they nab the culprit, I asked.

No chance, he said. The League of Consultants zindabad.

Oh, how so? I asked.

The culprit was Shri X. He helmed the operation. He had been penalised earlier when he headed Company ABC. Thanks to superb planning by the League of Consultants, Shri X slipped off the radar. After a few weeks, the legal trail evaporated. then Shri X resurfaced. On cue, he founded Company PQR." 

The success of the elaborate ops: under invoicing.

So what's under invoicing? I asked the consultant. 

He replied. Just suppose you import two sets of containers worth Rs. 1 lakh each that have a duty of 20%.

Your total import duty = Rs 40,000. Now, if you have a fake invoice claiming that you only ordered one container, this goes down to Rs 20,000.

I was not sure how you can make the container vanish. But then anything is possible, I suppose! 

The import consultant continued, if you extend this scam and produce an invoice claiming that instead of, say printing plates you've ordered aluminium sheets worth Rs 30,000 (duty is still 20%), your duty goes down to Rs 6,000.

Under invoicing can save Rs 34,000.

Which is why, Shri X of Company ABC and PQR is laughing all the way to Seychelles.

What makes all truly terrifying is, most of the under invoicing is being facilitated by hawala transactions.

And so, when an Indian importer gets a shipment of Rs 2-crore. He creates a fake invoice of Rs 20 lakhs which he pays. The rest of the amount goes to a hawala trader who gives him a code. This code is shared with the exporter who taps another broker in the network and recovers his money.

And so this is what it is. 

1). Too much focus on the macro. Which is why, the little "lut" is always ignored. 

2). This makes those who are ambitious (and greedy) focus on low-hanging fruits; usually the rotten kind of low-hanging fruits. 

3). The only way out is to improve synergies between efforts to fight tax avoidance and anti-money laundering policies.

Above all, there is no point being ignorant about the "lut". After all, there are many who are running a clean company, and being ethical and austerely workaholic. The question, melord is, for how long!

Latest Poll

What is the point of focus for the packaging industry, currently?

Results

What is the point of focus for the packaging industry, currently?

Margins

 

16.67%

Reverse auctions

 

30.56%

Safety norms

 

27.78%

Wastage

 

25.00%

Total Votes : 36

Events

Labelexpo India 2024

Nov 14 - Nov 14 2024
Labelexpo India, the boutique sh....