Unboxing the export turnaround in India’s toy story (GS Paper 3, Economy)
Context:
- India has recently turned a net exporter of toys, during 2020-21 and 2021-22, ending decades of import dominance.
- Between 2018-19 and 2021-22, toy exports increased from $109 million (₹812 crore) to $177 million (₹1,237 crore); imports declined from $371 million (₹2,593 crore) to $110 million (₹819 crore), official data show.
India’s toy industry:
- In 2015-16, the industry had about 15,000 enterprises or establishments, producing toys valued at ₹1,688 crore using fixed capital of ₹626 crore at current prices and employing 35,000 workers.
- Registered factories, those employing 10 or more workers on a regular basis 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.
- 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.
- Between 2014-19, the Indian toy industry witnessed negative productivity growth.
Reasons for the sharp turnaround in toy trade in just three years:
- Imports contracted as the basic custom duty on toys (HS Code-9503) 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.
The Asian scene versus India:
- Historically, 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.
- However, 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”.
- Toy manufacturing remained stagnant, archaic and fragmented, even as imports of modern, safe, and branded toys boomed. The industry is emblematic of all that was wrong with misguided industrial policy, as many critics of India’s industrial policy have contended.
Recent study titled, ‘India’s Toy Industry: Production and Trade since 2000’:
- It re-examined the industry output and export performance, since about 2000, with a new firm-level dataset from the formal and informal sectors synchronised with a four-digit product-level trade data. In particular, it looked into how more recent policy initiatives, such as ‘Make in India’, have a bearing on the toy industry.
- It found that 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 the majority of establishments and employment.
- Despite early positive trends, industry de-reservation (though it helped formalise the industry), failed to sustain output, investment, and productivity growth after 2007-08.
- Contrary to popular perception and official claims, ‘Make in India’ had a negligible effect in strengthening toy production and exports on a sustained basis.
Steps taken by the Government of India to promote indigenous toys:
- Formulation of a comprehensive National Action Plan for Toys to promote designing of toys based on Indian values, culture and history, using toys as a learning resource organizing hackathons and grand challenges for toys designing and manufacturing monitoring quality of toys, promoting indigenous toy cluster, etc.
- Basic Customs Duty (BCD) on toys (HS code 9503) was increased from 20% to 60% in February, 2020.
- DGFT has mandated sample testing of each import consignment to curb the import of sub-standards toys.
- A quality control order for toys has been issued by Department for Promotion of Industry and Internal Trade (DPIIT) through which toys have been brought under compulsory certification from Bureau of Indian Standards (BIS) w.e.f. 01.01.2021.
- BIS have granted 1001 licenses to domestic manufacturers and 28 licenses to foreign manufacturers for manufacture of toys with BIS standard Marks.
Conclusion & Way Forward:
- To sum up, India’s export surplus in toys during 2020-21 and 2021-22, is a welcome change. However, it seems to be driven by a rise in protectionism, and the exceptional circumstances of the COVID-19 pandemic. 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. Though minuscule, as the industry has an outsized role in policy discourse, the study seems to offer valuable lessons.
- Neither the reservation policy as during the Planning era, nor its abolition after the liberal reforms boosted the industry’s performance.
- One should perhaps look beyond simplistic binaries and examine the ground reality of industrial locations and clusters to tailor policies and institutions to nurture such industries.
