NEW DELHI: The Indian toy manufacturing industry has seen a new dawn ever since the Centre banned the sale of uncertified toys and levied heavy custom duty on imports.
Over the last three years (FY2019-FY2022), the import of toys to the local market has declined 70% while there was a surge of 61% in exports, as per the government data.
Despite this significant turnaround, India needs to overcome a few more hurdles to claim global dominance in this industry, which is estimated to grow from $141.08 billion in 2021 to $230.64 billion by 2028 at a CAGR of 7.30%.
According to industry experts, small manufacturers are unable to upgrade to machinery production as taxes levy on the equipment is high. There has been an increase in the production of electronic and battery-operated toys in India, which were majorly imported before.
However, most small toy manufacturers lack the necessary equipment to produce electric toys and are hesitant to upgrade because the equipment carries a 34 % import duty.
Even though the Bureau of Indian Standard (BIS) has given toy producers over 800 licences, many of them have struggled to keep up with the regulatory changes and adhere to BIS standards. This has been a problem for small-scale retailers who face a shortage of supply since they are unwilling to buy a lower-quality product and therefore only depend on the bigger companies producing and supplying quality products.
Uncertainty over import duty
The industry is also afraid that the government may be bringing changes in the current taxes system, which has given them a competitive edge.
This fear arises as the Centre has done a flip flop in other sectors and India’s effort to reduce dependency on China took place largely because of a worsening border dispute.
In 2020, the Indian government increased customs duty from 20% to 60% combined with the BIS certification requirements.
This slowed the flow of low-quality imported toys, especially which came from neighbouring nation China, into the Indian market, benefiting the local toy manufacturers.
“If they were to ease these regulations after some months, manufacturers will suffer a great loss. There has already been an investment of lakhs in the machinery. If Chinese products were to be supplied in the Indian market again, our sales will go down because their cheaper prices will stay attractive regardless of the harmful quality,” said Vipin Nijhawan, vice-president of Toy Association of India.
The sudden change in regulations has served as a boon for Indian toy manufacturers, but at the same time, it has also resulted in a shortage of supply and a price surge. Small-scale retailers have been facing issues in acquiring products.
Surge in price of raw material
Sanjay, owner of Sanjay Toys in Delhi’s famous Jhandewalan market, said, “Plastic has also become expensive and the shorter supply with a higher demand has made the manufacturers increase their margins thereby, even increasing the wholesale price.” Polymer prices, according to industry estimates, in 2021, shot up by 40% to 100% depending on the grades.
Addressing the issue of price surge, Gulshan Gambhir, Director at Gulshan Industries, said “There has been a price surge but that is something is due to macro factors/covid related factors which has led to price rise of raw materials but that is something which has been seen across all sectors. Therefore, some costs have been absorbed and some passed on to the customer.”
According to a FICCI-KPMG report, the Indian toy sector, which is presently valued at more than $1 billion, has the potential to grow by double by 2025. However, Indian toy manufacturers, who want to dominate this market are seeking some additional support from the Indian government.
Sourabh Kachru, Partner, Funride Toys LLP, said “We would want 4 things from the government including more toy clusters in order to increase the production capacity and to help in employment generation. Subsidies on the export of toys. Toys to be added in all the FDA agreements so that our global sales also increase. Production linked incentives (PLI) Scheme should also be introduced in Toys.”
Kachru and other manufacturers appear confident that the Indian toy industry has not only the ability to compete with the Chinese market but also outperform it with the same growth in the upcoming years.
“The Indian toy retail industry is estimated to be around Rs 15,000 crores and we are expecting 20% CAGR growth in the near future,” said Kachru.
The better infrastructure and cheaper labour costs in India are also a green light for the manufacturers looking forward to increasing production. Moreover, the government has also announced the setting up of Toy clusters to aid the toy production process.
“The only problem that comes to mind would be the high cost of real estate in setting up a new project but even that is being taken care of with the new toy clusters coming up all over the country where the govt provides land and other amenities on subsidised rates,” said Gambhir of Gulshan Industries.