Fake auto parts industry growing at alarming rate

The spiralling growth of Indian automobile industry has also led to an increase in the notorious counterfeiting business. Every year, the country bears a taxation loss of approximately Rs 2700 crore as spurious parts make Rs 11,000 crore of the Rs 40,000 crore Indian auto component market. Despite government checks, this parallel illegal industry is growing at an alarmingly pace.

We spoke to the president of Authentication Solution Provider's Association (ASPA), Mr U.K Gupta, to understand the reasons:

What is the current status of counterfeiting in Indian automotive industry?

Measuring counterfeiting is methodologically challenging for various reasons. First, it is an illegal activity and illicit traders attempt to remain invisible and are unlikely to record their activities. Also, for security reasons, data on illicit trade is usually difficult to obtain, as law enforcement agencies often prefer not to publicize the scope of their activity. Furthermore, all methods to estimate illicit trade have their limitations and not all studies clearly describe their methodology of these limitations.

However, according to a recent study by FICCI "Illicit Market: A Threat to Our National Interest" the gray market has a substantial presence in auto and has also shown a big increase from 29.6 per cent in 2010 to 33.7 per cent in 2012, which is highest among major industries. The loss to the industry on account of this gray market is estimated to be Rs 10,501 crore in 2014, up from Rs 9,198 crore in 2012. The total loss to the government estimated for 2014 on account of illicit markets in the auto components industry is Rs 3,113 crore, up from Rs. 2,726 crore in 2012. This loss is only on account of tax revenues.

How are automotive parts counterfeited?

Largely auto parts can be counterfeited in the following manner; Fake pitman arms come with misspelt name and do not meet the minimum requirement of OEM fatigue tests. Brake pads made of poor quality steel backing plates, weak or no shim bonding to the back plate. Also, brake pads made of inferior products like compressed wood chips and sawdust. Counterfeit windshields fit poorly causing wind noise, leakage, and appearance problems. They are often made without safety shatterproof glass. And unsuccessful testing fuel filters can be sold in good packing.

What are the measures and technologies currently employed to prevent counterfeiting in India? How effective are they?

Some of the most effective technology that is used to combat counterfeiting is by application of Optical Variable Devices (OVDs)/Security Holograms and Security Labels.

They provide three levels of security - Overt, those that can be easily identified by naked eye. Covert security features are those features that are helpful to brand owners is meant for immediate visual authentication by a common man. The overt security features include optical features, such as, 3D effect, 4 channel effect, slip effect etc., and printing features, such as, colour changing inks and water marks. These features can be detected only with an aid of authentication tools.

The covert security features include optical features such as concealed texts, nano texts, raster texts etc., and printing features such as UV ink, thermochromic ink etc. can be verified only at Forensic laboratories.

The most critical are 'Forensic' features that are meant for enforcement agencies to enhance the security. Non-optical security such as barcode, mirror effect and taggant effect can also be provided. The taggant effect consists of a special coat of nano particles in certain specific combination on the OVDs or Security Labels, and the presence of the taggant particles can be detected only with an aid of hand-held taggant reader which is aligned to read these specific combination of nano-particles, thereby verifying the genuineness of the product on the spot by a simple field test.

How do counterfeiters manage to make such perfect duplicates and fool people?

The counterfeiters are becoming successful because we are not making their task difficult or in another way we are not making this business less profitable. In most of the cases, the product packaging is easily copied due to availability of required packaging raw materials in the neighbouring countries. Further, the non-adoption of authentication solutions, inadequate surveillance efforts by brand owners to identify counterfeit products and lack of consumer awareness is also helping them.

What's kind of value an automotive manufacturer can derive from using authentication solutions?

Authentication solutions have multiple benefits. Firstly, they provide an easy to identify visual tool that protect consumers from counterfeit products. Authentication solutions such as Optical Variable Devices (OVDs) offer a multilevel security system comprising of Overt, Covert and Forensic features. Overt features are for consumer verification, Covert features can be verified by the brand owner and his team/partners, and the Forensic level of features can only be verified at hi-tech laboratories and can be used as evidence in a Court of Law.

In today's business context, a Brand is one of the most valuable assets of a company. Brands are under attack not just from known or visible competitors but even from invisible enemies in form of product tampering, counterfeiting and pilfering. Each of these lead to erosion of brand value, loss of market share, profit and above all - dissatisfied customers.

Authentication solutions enable a brand owner and his consumers to identify a genuine product. This increases the consumer's confidence in the product quality and leads to product loyalty. The direct benefit of this is huge enhancement in the brand value. Thus authentication solutions help the brand owner derive values like higher consumer loyalty, enhanced market share and increased brand valuation.

How do you see the future growth of domestic automotive industry without the prevalence of counterfeiting?

It will be quite a challenge to have a world without any counterfeiting. ASPA and its members will certainly contribute in the fight to reduce the crime rate by being innovative and continuously developing solutions with new technologies and strategies to deploy them to desist, catch and prosecute a criminal.

We are working with International Hologram Manufacturers' Association in developing IS0 global standard for authentication tools to be used in anti-counterfeiting of material goods. These standards have been designed to help the brand owners in identifying most relevant anti-counterfeiting solution to meet the company / organization strategy. It is estimated that the anti-counterfeit packaging market is expected to grow to about $128 billion by 2019 at a CAGR of 14.1 per cent (source: http://www.packworld.com/trends- and-issues/traceability- authentication-serialization/anti- counterfeiting-packaging- market)

We see sectors like Pharmaceutical, Auto Components and FMCG as big growth areas. In the government sector, there is a lot of scope for holograms on banknotes, and id documents like passports, visas, driving licences etc. Internationally, more than 100 countries now have a hologram on their banknotes, while our country is yet to adopt this proven technology.