Context

• During 2020-21 and 2021-22, India has become a net exporter of toys, ending a long import dominance.
• However, whether this turnaround represents a sustained rise in investment or a short-term outcome of protectionism and COVID-19 pandemic-related global disruptions is a matter of debate.

Indian Toy Industry

• In 2015-16, the industry had about 15,000 enterprises or establishments (organised and unorganised combined).
• The production stood at ₹1,688 crores using fixed capital of ₹626 crores at current prices and employing 35,000 workers.
• Registered factories (those employing 10 or more workers regularly) accounted for 1% of the number of factories and enterprises, employed 20% of workers, used 63% of fixed capital, and produced 77% of the value of output.
• However, during the one-and-half decades between 2000 and 2016, industry output was halved in real terms (net of inflation) with job losses.
• Domestic market size currently stands at an estimated value of $ 1.5 Bn.
• Labour-intensive toy categories like dolls, soft toys and board games offer significant manufacturing potential in India due to inherent cost competitiveness and growing demand.
• The sector is dominated by small & medium sized manufacturers.
• Over 4,000 toy units in the MSME Sector significantly contribute to both manufacturing and exports to large global & domestic brands.

Indian Toy Industry Share in Global Market

• India’s exports stand at a mere half-a-percentage point.
• Between 2014-19, the Indian toy industry witnessed negative productivity growth.
• Imports accounted for up to 80% of domestic sales until recently. Between 2000 and 2018-19, imports rose by nearly three times as much as exports.
• But in recent years, the Indian toy industry is expanding its global presence, with increased high-value exports to Middle East and African countries.
• The Indian toy industry is among the fastest-growing globally, projected to reach $3 Bn by 2028, growing at a CAGR of 12% between 2022-28.

What explains India's Negligible Share in Global Toy Market?

• Inward-Oriented Industrial Policy
  • Asia’s successful industrialising nations promoted toy exports for job creation, starting with Japan about a century ago, China since the 1980s, and currently Vietnam following in their footsteps.
  • In contrast, India followed an inward-oriented industrial policy in the Planning-era, which sheltered domestic production by providing a “double protection” by imports tariffs and reservation of the product for exclusive production in the small-scale sector known as the “reservation policy.”
  • As a result, Toy manufacturing remained stagnant, archaic, and fragmented, even as imports of modern, safe, and branded toys boomed.

The Export Turnaround and Import Contraction

• There has been a sixfold increase in Indian toy exports in 2021-22 compared to 2013-14.
• Toys have been recognised as one of the champion sectors with significant export potential.
• Toy exports increased from $109 million (₹812 crore) to $177 million (₹1,237 crore) between 2018-19 and 2021-22.
• Imports declined from $371 million (₹2,593 crore) to $110 million (₹819 crore).

Reason Behind Import Contraction

• Increased Custom Duty: Imports contracted as the basic custom duty on toys tripled from 20% to 60% in February, 2020.
• Numerous non-tariff barriers were imposed as well such as production registration orders and safety regulation codes, which contributed to import contraction.

Is the Export Turnaround a sign of Sustained Growth due to govt policies?

• The turnaround in toy exports is based on data from just two recent years, and during the COVID-19 pandemic, it is perhaps too premature to claim policy success.
• The potential for sustaining net exports appears slim as the industry has hardly made sustained investment to boost output and exports.
• The turnaround does not seem to be the outcome of strengthening domestic investment and production on a sustained basis.
• Since around 2000, the industry has shrunk with rising imports, until two years ago.

Government’s Policy Initiatives Impact on the Toy industry

• Impact of “Make in India”
  • The annual value of output and fixed investment at constant prices (net of inflation) after peaking in 2007-08, have trended downwards with considerable fluctuations (except for 2019-20).
  • Apparently, there is no evidence of ‘Make in India’ positively affecting these indicators on a sustained basis.
  • The output of the informal or unorganised sector shrank, though it continues to account for most establishments and employment.
• Industry De-reservation Effect
  • In 1997, in the wake of liberal reforms, the reservation policy was abolished.
  • New firms entered the organised sector, but only for a while, and productivity growth improved.
  • Despite early positive trends, industry de-reservation failed to sustain output, investment, and productivity growth after 2007-08.

Some Other Government Schemes to Strengthen the Toy Industry

• Central Government Schemes
  • Scheme For Granting Recognition & Registration to In-House R&D Units
  • Remission Of Duties & Taxes on Exported Products (RoDTEP)
  • Duty Drawback Scheme
  • Export Promotion Capital Goods (EPCG) Scheme
  • Custom Bonded Warehouse Scheme
  • Increase in basic custom duty (BCD) for Electronic Toys from 5% to 15% to encourage domestic manufacturing
• State Incentives
  • Capital subsidy
  • Stamp duty exemption
  • Interest subsidy
  • Tax reimbursement
  • Electrical duty exemption  

What should be Policymakers’ strategy for a sustainable long-term term industry growth?

• The policymakers should look beyond simplistic binaries; planning versus reforms.
• There is a need to examine the ground reality of industrial locations and clusters to tailor policies and institutions to nurture such industries.