A recent report by The Economic Times highlights a worrying trend in India’s online smartphone market: a large percentage of phones sold online are ending up in the grey market. Trade bodies claim that up to 80% of online-exclusive smartphones are being diverted by aggregators who exploit loopholes to purchase them in bulk and resell them at higher prices.
Tax Losses and Counterfeit Risks: The Dark Side of India’s Online Smartphone Market
These aggregators act as wholesalers, using numerous user accounts to circumvent online retailers’ purchase limits and acquire popular models in bulk. This creates artificial stock shortages on e-commerce platforms, frustrating genuine customers. The aggregators then sell these phones to retailers across states at inflated prices, who can further exploit the limited online availability to justify even higher markups.
This diversion results in a dual negative impact. Firstly, it causes government revenue loss due to tax evasion. Aggregators often buy these phones using business accounts, allowing them to claim Input Tax Credit (ITC) on the 18% GST paid. However, when they resell these phones at a higher price through unofficial channels, the additional profit escapes GST taxation. Industry estimates suggest this could be a potential $600 million GST rebate fraud.
Consumer Vulnerability and Brand Impact
Secondly, consumers are left at risk. By purchasing from unauthorized sellers, they risk receiving counterfeit products or facing warranty issues later on. Additionally, they miss out on exclusive deals and offers often available through authorized online retailers.
Smartphone brands like Poco, OnePlus, iQOO, and Realme are reportedly the most affected by this grey market activity. These brands are taking measures to curb the practice by issuing warnings to retailers and requiring them to sign undertakings promising to sell only through authorized channels. Moreover, some brands are appointing distributors to cater specifically to offline retailers.
Need for a Multi-Pronged Approach
The smartphone industry requires a multi-faceted approach to tackle this issue. E-commerce platforms need to enhance their systems to detect and prevent bulk purchases using multiple accounts. Additionally, stricter regulations and enforcement are necessary to deter tax evasion practices by aggregators. Finally, consumer awareness campaigns are essential to educate buyers about the risks associated with purchasing from unauthorized sellers.
This is an ongoing story, and it remains to be seen how effectively these measures can reduce grey market activity in India’s online smartphone market.
