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EDITORIAL ANALYSIS : Unboxing the ‘export turnaround’ in India’s toy story

 

Source: The Hindu

 

  • Prelims: Indian exports, protectionism, Make in India etc
  • Mains GS Paper III: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment etc

 

ARTICLE HIGHLIGHTS

  • India has turned as a net exporter of toys, during 2020-21 and 2021-22, ending decades of import dominance.

 

INSIGHTS ON THE ISSUE

Context

Toy Industry:

  • The Indian toy industry is estimated to be valued at approximately 5 billion USD
  • Global toy industry is about USD 120 billion, making up around 1 percent of the global market share.
  • The toy manufacturers in India are mostly located in NCR, Maharashtra, Karnataka, Tamil Nadu, and clusters across central Indian states.
  • The sector is fragmented, where 90 percent of the market is lacking organization, and adding to them are 4,000 toy industry units from the MSMEs.
  • The domestic toy demand is forecasted to grow at 10-15% against the global average of 5%

 

Background:

  • Between 2018-19 and 2021-22: Toy exports increased from ₹812 crore to ₹1,237 crore
  • Imports declined from ₹2,593 crore to ₹819 crore(official data show).

Promotion of Toy exports:

  • Make In India: The achievement is credited to the ‘Make in India’ initiative launched in 2014, and related policies, official press releases claim.
  • Mann ki Baat: In 2020, the Prime Minister spoke of promoting toy manufacturing, in ‘Mann ki Baat’.

 

India’s toy industry:

  • In 2015-16(Combined for the organized and unorganized sectors): 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.
  • 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.
  • India in the global toy trade: exports at a mere half-a-percentage point.
  • Between 2014-19: Indian toy industry witnessed negative productivity growth.

 

Reason for 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 (Press Information Bureau release July 5, 2022).

 

The Asian scene versus India

  • Historically, Asia’s successful industrializing 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.
  • India followed an inward-oriented industrial policy in the Planning-era
    • It 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”.

The outcome:

  • 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.

 

Issues:

  • Liberal reforms, the reservation policy was abolished.
    • New firms entered the organized sector, but only for a while, and productivity growth improved.
    • Unorganized sector languished with job losses, even as a majority of workers remained there.

 

India’s Toy Industry: Production and Trade since 2000, Economic and Political Weekly:

  • Itre-examined the industry output and export performance, since about 2000, with a new firm-level dataset from the formal and informal sectors synchronized with a four-digit product-level trade data.
  • 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).
  • There is no evidence of ‘Make in India’ positively affecting these indicators on a sustained basis.
  • The output of the informal or unorganized sector shrank, though it continues to account for the majority of establishments and employment.
  • Industry de-reservation (though it helped formulate the industry), failed to sustain output, investment, and productivity growth after 2007-08.
  • ‘Make in India’ had a negligible effect in strengthening toy production and exports on a sustained basis.

 

Government measures to increase domestic production and reduce imports of toys:

  • The Directorate General of Foreign Trade (DGFT) has mandated sample testing of each consignment.
  • Basic Customs Duty (BCD) on Toys has been increased.
  • Subjects like Maths, Science, and History were integrated into toy product development and production
  • Toys have been brought under compulsory Bureau of Indian Standards (BIS) certification.
  • The Ministry of Education organized Toycathon 21, a unique effort by 6 Ministries & Departments to crowd-source solutions to problems faced by the toy industry.
  • Scheme of Fund for Regeneration of Traditional Industries (SFURTI) of the Ministry of Micro, Small & Medium Enterprises (MSME), 19 toy clusters have been approved.

 

Way Forward

  • The reported 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.
  • 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.
  • We should perhaps look beyond simplistic binaries — planning versus reforms — and examine the ground reality of industrial locations and clusters to tailor policies and institutions to nurture such industries.

 

QUESTION FOR PRACTICE

Economic growth in the recent past has been led by an increase in labor activity.” Explain this statement. Suggest the growth pattern that will lead to creation of more jobs without compromising labor productivity. (UPSC 2022) (200 WORDS, 10 MARKS)