Fix business environment for thriving local toy industry

So, if the toy industry is to genuinely thrive, this can only happen when the plethora of rules that keep industry down are fixed, when infrastructure costs are lowered, and when an industry has more access to formal credit. (Representative image)

Given the business potential, as well as the potential to create employment, prime minister Narendra Modi did well to talk of the need to develop a vibrant local toy industry in the country that supplied to all parts of the world. While the global industry is estimated to be over Rs 7 lakh crore, the Indian market is small and, even here, the share of cheaper Chinese toys is quite large at the lower end of the market; to the extent popular toys are based on entertainment content and intellectual property—GI Joe, Barbie, etc—that resides in the West, the share of India has to be limited; but even when these toys are produced under licence, the licence does not usually go to Indian firms, given the Chinese competition.

Soon after the prime minister spoke of this, Karnataka chief minister BS Yeddyurappa spoke of creating India’s first toy manufacturing cluster in a 400-acre SEZ at Koppala and, he said, 40,000 jobs could be generated in five years. The vast majority of India’s toy-makers, however, are tiny units and, apart from being spread out across the country, they cannot afford to move to costly SEZs. So, if the toy industry is to genuinely thrive, this can only happen when the plethora of rules that keep industry down are fixed, when infrastructure costs are lowered, and when an industry has more access to formal credit.

Indeed, the 2018-19 Economic Survey has a chapter on ‘dwarf’ firms—these are old firms that simply refuse to grow—that is especially relevant in this context; according to the Survey, half the firms in even the organised manufacturing sector are ‘dwarfs’, but they account for just 13% of the total employment. As the Survey points out, whether it is labour laws including minimum wages or other incentives such as access to credit under priority sector lending norms or availing the benefits of reservation or even price preference in government tenders, all act as a disincentive when it comes to becoming bigger. The Industrial Disputes Act, for instance, applies the moment a firm has more than 100 workers. If a firm is incentivised to remain small, this acts as a natural cap on its ability to produce toys in large volumes, or even of adequate quality. A look at the average size of firms—in terms of their capital base or the number of employees—in India versus those in countries like China makes this clear. Issues such as these need to be tackled if India is to become a big supplier, not just of toys, but of most products.