Counterfeit: The Economy's Underbelly

Counterfeit products are fake, imitated copied products deliberately misrepresented to resemble branded/trademarked products. Counterfeit products are generally of lower quality than the original products. Such products leak into the market through unorganised routes or through perpetrators claiming to sell genuine products and pocketing the illegal price differential. This impacts not only the customers but also the legitimale manufacturers and the government.

Counterfeiting has spread far and wide, and counterfeit products range from luxury items to automobile and healthcare products to daily use household items. Counterfeits have penetrated across product segments, where demand is high, but supply is constrained, or where the market is price sensitive but demanding.

Figure 2: Prevalence of counterfeiting is higher in high-volume products

OECD's 'Mapping Global Trade in Fakes 2025' report ranks India among the top 30 economies for the origin of counterfeit goods. Counterfeiting cases in India have been increasing steadily, with a 3.4% annual average rise between 2018 and 2025. The COVID-19 pandemic saw a surge in counterfeiting cases, particularly in 2020, with the lockdowns creating an environment conducive to illicit activities. The most affected sectors include alcohol, tobacco, FMCG, and pharmaceutical products, which account for around 80% of reported counterfeiting cases. The pandemic also led to a spike in counterfeit products such as fake PPE kits and sanitizers, highlighting the need for greater vigilance and action against illicit trade.

Definition of counterfeiting

Businesses, both large and small, use trademarks to help consumers identify their products. A trademark is most often. a word, phrase or symbol that identifies the source or origin of a product or service in the market. A counterfeit is an item that uses a trademark without the permission of the business that owns it. In other words, counterfeits are unauthorised replicas of original products. The International Anti-Counterfeiting Coalition defines counterfeiting as a crime that involves theft of trademarks. Counterfeits, commonly called fake goods or knockoffs, are usually produced with the intent to take advantage of the superior value of the imitated products. Hence, the OECD defines counterfeiting as an unauthorised representation of a registered trademark carried on goods identical or similar to goods for which the trademark is registered with a view to deceive the purchaser into believing that he/she is buying original goods.

Counterfeiting is not the only threat to product authenticity. Product tampering, which involves the intentional alteration or contamination of a product, is another serious concern. This can include activities such as refilling or re-labelling products or adding hazardous materials to create a fake product. Product tampering poses a significant risk to consumer safety and can have serious consequences, including harm to individuals and damage to a company's reputation.

Both counterfeiting and product tampering pose a threat to various stakeholders, including manufacturers, consumers. government and national security of the affected country. They impact the economy not only in terms of lost revenues to manufacturing companies but also in terms of lost taxes to the government. Furthermore, counterfeiting and product tampering can compromise consumer safety, undermine trust in legitimate businesses, and erode the competitiveness of the market.

It is essential for businesses, governments, and consumers to work together to prevent counterfeiting and product tampering. This includes implementing robust authentication measures, monitoring supply chains, and reporting suspicious activities. By taking a proactive and collaborative approach, we can reduce the risks associated with counterfeiting and product tampering and create a safer, more secure market for everyone.

Impact of counterfeiting on different stakeholders

Counterfeiting adversely impacts different stakeholders, namely, brand owners (manufacturers), distributors, retailers, consumers, and the government. However, the adverse impact on one group of stakeholders largely differs from that on the other group of stakeholders.

1. Brand owner/companies

Loss of revenue

Brand-owner companies or manufacturers of original products suffer loss of revenue when consumers end up purchasing knockoffs instead of the original products. Though in many cases, consumers who end up purchasing knockoffs are unaware at the time of making the purchase that they are buying counterfeit products, there are cases where consumers knowingly buy counterfeit products. However, in cases where loyal customers are deceived by counterfeiters into buying knockoffs, the brand-owner companies run the risk of losing their hard-won trust and future sales revenue.

Loss of reputation and dilution of brand image

In cases where consumers unknowingly purchase knockoffs of original products, brand-owner companies suffer loss of reputation as the inferior quality of knockoffs may lead consumers into forming a negative opinion of the original products. Even in cases where consumers knowingly purchase knockoffs of original products, brand-owner companies suffer loss of reputation because the inferior quality of knockoffs dilutes their brand image.

Limitations on product innovation

Counterfeiting thrives on violation of intellectual property rights, patents and trademarks, thereby discouraging brand-owners from investing and deploying resources in product innovation.

Fraudulent product warranty claims

Counterfeiters use poor-quality materials and follow sub-standard manufacturing processes to produce fake products. So, their fake products may not last as long as the original products. This may lead to fraudulent warranty claims from unsuspecting consumers who would have unknowingly bought fake products.

2. Retailers and distributors

Loss of consumers' trust

Retailers lose customers' trust if their customers end up with counterfeit products through their retail outlet. In many such cases, retailers lose business even in unrelated product categories as their customers shift to a different retail outlet.

3. Consumers

Loss of trust in brands

Some consumers willingly buy counterfeit products because they aspire to be seen using branded products, but they are unwilling to pay as much as those branded products cost. Generally, these consumers are not the target segment of the brands whose counterfeit products they purchase. This dilutes the brand value for consumers who purchase genuine products and causes them to lose trust in the brand.

Risk to health and safety

Since counterfeit products are of inferior quality, they may not meet safety standards and pose a risk to the health of consumers. This is especially a concern when the counterfeit product is a medicine or packaged food item.

4. Government

Loss of tax revenue

Counterfeiting causes the government to lose tax revenue in many ways. Firstly, the government loses tax revenue from legitimate companies because these legitimate companies lose their sales revenues to counterfeiters. Secondly, the government loses tax revenue from exporters because counterfeiting discourages international buyers from importing products from countries where counterfeiting is rampant. Thirdly, the government loses tax revenue by being compelled to provide law enforcement agencies with sufficient resources to curtail counterfeiting. Had counterfeiting not been an issue, the government could have used its tax revenues for development and economic growth of the country.

Risk to life and property

Counterfeiting in certain sectors such as food & beverages, defence and healthcare products can threaten life and property. An emerging threat is involvement of terrorist organizations in counterfeiting, piracy and smuggling, because it not only increases risk to life and property but also threatens peace and political stability of the country as funds thus raised is often used for terrorist activities.

Counterfeiters: Why do they do it?

Table 1: Reasons behind prevalence of counterfeiting

1. Demand supply mismatch

A demand-supply mismatch drives counterfeiting because strong consumer desire for branded or essential products often outstrips the amount that legitimate producers can legally supply at affordable prices. When genuine goods are scarce or priced too high, buyers turn to cheaper alternatives, creating a profitable gap that counterfeiters exploit by producing low-cost imitations that satisfy the unmet demand. This gap is amplified by limited production capacity, geographic distribution gaps, and consumers' limited ability to verify authenticity.

2. Limited adoption of authentication and traceability technologies

Limited adoption of authentication technologies fuels counterfeiting because verification remains inconsistent, costly, and fragmented across supply chains; many firms avoid expensive tags, serialization, or QR-based checks, especially in low-margin or highly distributed markets, while consumers and retailers often lack the tools or incentives to confirm authenticity. This creates easy entry points for counterfeiters, who can replicate simple packaging cues and exploit gaps where genuine products are not reliably tracked or verified.

3. Complexity of supply chains

Supply chains involve a vast network of small-scale manufacturers, informal distributors, and fragmented logistics providers that often operate across state borders. Limited digitization, reliance on manual paperwork, and the prevalence of "middlemen" create numerous hand-offs where visibility is low, making it easy for counterfeit goods to be inserted, relabelled, or diverted into parallel markets.

Additionally, the coexistence of formal and informal retail channels (e.g., street stalls, unverified e-commerce pages) further weakens traceability, giving counterfeiters ample opportunities to mix fake products with genuine ones throughout the distribution chain.

4. Reluctance of Brand/Manufacturers to raise consumer awareness

The reluctance of brands and manufacturers to actively raise consumer awareness about counterfeiting significantly contributes to its prevalence. When companies avoid educating customers on how to identify genuine products or the risks associated with counterfeit goods, consumers remain vulnerable and less equipped to distinguish fakes from authentic items. This lack of information creates an environment where counterfeiters can operate more easily, exploiting consumer ignorance and undermining brand integrity. By not prioritizing transparency and awareness campaigns, brands inadvertently allow counterfeit products to flourish in the market.