A new government initiative promises to help Indian toymakers scale up production capacity to compete internationally, further shrinking China’s share in the domestic market.
The Indian government will “very soon” announce a Production Linked Incentive (PLI) scheme for the toy industry, with a proposed outlay of US$424 million, said Ajay Aggarwal, president of the Toy Association of India.
“We have appointed a committee for consultation with the government to finalise the PLI draft,” said Aggarwal.
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The scheme would last for five years and subsidise the sale of toys by manufacturers in the country.
India’s toy industry has been a rare bright spot in the country’s drive to cut import reliance on China in recent years. New Delhi has implemented various policies to reduce dependence on Chinese goods and boost local manufacturing, while taking advantage of Western efforts to diversify from the world’s No 2 economy.
Anubhav Jain, of United Agencies Distributors, which manufactures plastic toys, said support under the PLI scheme would help smaller players in the industry think big.
China is the biggest producer in the global toy market, producing more than 70 per cent of the world’s total and accounting for 56 per cent of global exports, according to data from Statista.
“This number used to be higher,” said Amit Chakraborty, president of Aequs Toys, one of India’s largest toy manufacturers and exporters. “Manufacturing has now moved in three other directions – Mexico, Vietnam and India.”
China accounted for 86 per cent of India’s toy imports between 2016-20, according to a report last year by KPMG India and the Federation of Indian Chambers of Commerce and Industry. India’s dependence remains mostly in electronic and plastic toys, the report added.
However, India’s overall toy imports have declined by more than 70 per cent in the past three years, from US$371 million in the 2017-18 financial year to US$110 million 2021-22. India’s exports, meanwhile, have jumped by 61.3 per cent over the same period, from US$202 million to US$326 million.
In 2020, the government introduced stricter toy import measures, such as quality control certification and increasing basic customs duties from 20 per cent to 60 per cent, which was a huge help to the domestic industry.
“At first we did not understand why the government would impose laws on the toy industry, a very small industry,” said Jain.
“But when we saw the bigger picture, wherein they were trying to help us establish the industry on a pan-India basis, it was tremendous.”
The KPMG report predicted that India’s market size for toys could double by 2024-25, growing from US$1 billion to US$2 billion.
The PLI scheme has the potential to spur that growth, said experts. It would not only allow manufacturers to increase production capacity and exports, but it would also generate more employment.
“The government is trying to understand what are the shortcomings in the industry and how other countries have provided benefits [to the industry] directly or indirectly,” said Manu Gupta, director of Playgro Toys India and member of the consultation committee appointed by the Toy Association of India to work on the PLI draft.
The 2021 report identified high import dependence in India for electronic toys, which Gupta highlights as one of the fastest growing segments in the toy market.
Naresh Kumar, CEO of FunZoo Toys, imports almost all critical electronic components for battery operated toys from China.
“We import fabric [for plush toys] and electronic modules that have chips inside them, as they are not available in India,” said Kumar. “Although India has started manufacturing fabric, we can’t match the quality and price being offered by China.”
Kumar said there is a practice among some manufacturers to under-invoice or misdeclare electronics imports from China and cited the need for government intervention.
Gupta said the electronic toys industry in India is in an early stage of development and expertise was lacking.
“It is not only about manufacturing critical components or [printed circuit board], it is also about other ancillary components that go into making that toy,” he said.
Can India help break the China supply chain?
However, an electronic toy supply chain is slowly taking shape. Among other large manufacturers, Aequs Toys is setting up a special economic zone on 430 acres of land in the city of Koppal, in the southwestern state of Karnataka, said Chakraborty.
“We will have our own [printed circuit board] manufacturing, set up packaging and hardware units so that we are making an ecosystem where we will not require to go out of Koppal to manufacture our toys.
“The Koppal economic zone could be like a small version of the Guangdong region in China, which specialises in toy making.”
The electronics toy market in India is less than 10 per cent of the overall market, said Chakraborty, adding that “using electronic toys as an example of India’s dependence on China is a very lopsided view [of the toy industry]”.
“China is more advanced in the low-cost electronics industry, as required for making toys,” he said.
“India is still not there. But if the government keeps restricting imports from China, this industry will be forced to develop and we already see that happening.”
So far, the Indian toy industry’s increased exports have largely been driven by plastic toys.
“Indian plastic and plush toys are cheaper than China’s because the price of labour in India is a third of China’s. That along with a large engineering base attracts global brands and retailers to source from India,” said Chakraborty.
“[China has] expertise in making more complicated toys like plush and plastic combinations or mechatronic toys. India will take a little time to catch up.”
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