Unboxing the ‘Export Turnaround’ in India’s Toy Story

Why in News? 

• 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 import 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.

 

---

Q1) How will Toy Clusters revive the toy industry in India? 

The government has launched a programme named SFURTI (Scheme of Fund for Regeneration of Traditional Industries). Under this program, Toy Clusters will be created aiming to bring together in-campus business support services that will include business accommodation and social infrastructure to support the entire workforce working under the Toy Clusters. 

 

Q2) What are some barriers to the growth of the Indian toy industry? 

At present, the GST rates on toys are 18% which is not a lot, but still, there is a space for tax reduction, which will further decrease the price of toys and will boost sales. The unavailability of major raw materials acts as a main barrier to the toy industry in India. India does not produce enough raw materials required for the toy industry. Thus companies import it from other nations which increases the prices of toys in India. The lack of technology also seems to act as a barrier to the Indian toy industry. Even after huge advancements in technology, India hasn’t got enough to compete with the other players in the toy industry like China, Japan, and the USA. The Indian toys are not quite accessible as a majority of them are not available on e-commerce websites. As today major trade takes place online on e-commerce websites and thus the absence of Indian toys over there results in lower sales.

 

---

Source: The Hindu