Leaping Forward: Favourable Government Policies to Make India a Toy Manufacturing Hub

The growing demand for toys in India is driven by large base of young population, rising disposable incomes, affordable labour cost, emergence of educational toys and favourable government policies are poised to make India one of the largest manufactures and marketplace for toys, according to a joint report by international real estate advisory firm Savills India and Aequs Infra, the infrastructure arm of Aequs Group.  The report titled “Making Headway: Toy manufacturing sector in India” has been released in September 2021.

Currently, the domestic toy market is highly fragmented with over 4,000 toy manufacturing units in four states-- Karnataka, Tamil Nadu, Uttar Pradesh and Maharashtra. Hence, the market relies heavily on imports. “We import around 80% of our toys from abroad. This means crores of rupees are going abroad on them,” said Prime Minister Narendra Modi during the launch of Toycathon 2021, an endeavour by the government to create an ecosystem for the domestic toy industry. He highlighted that there is a need to focus on reducing imports and building toys and games locally.

According to the Ministry of Commerce, the import value of toys, games, sports requisites, parts and accessories and sports equipment to India during 2020-21 amounted to around USD 407.3 mn.  In 2020-21, 71.1% of India’s toy imports met by China, followed by Netherland (4.4%) and Hong Kong (4.0%). Taiwan and USA accounted for 3.2% and 3.0% of toys imports respectively during the same period. 

The growth story of toy industry

India has several advantages when it comes to manufacturing toys. The raw material is easily available, labour costs are low compared with the competing countries, the country has the lowest corporate tax in entire Asia and offers an ever-growing consumer base. Now with government support, the industry has even stronger growth potential.

Many state governments are offering fiscal incentives including up to 30% in capital subsidy. This will be a strong incentive for many toy manufacturers. Additionally, there are interest subsidies available for terms loans, power tariff subsidies, electric duty exemption, and reimbursements of stamp duty and registration charges. Some state governments also offer some other subsidies including rental subsidy, wage subsidy and skill development incentives.

Additionally, the central government is working towards improving safety standards and working towards minimising imports. It is offering toy manufacturers ease of doing business, Foreign Direct Investment (FDI), and infrastructure investments. Recently, the toy manufacturing segment was also included in Production Linked Incentive (PLI) scheme. There is a greater focus on the production of educational toys.

The Central government has approved 8 toy manufacturing clusters with an outlay of Rs. 2,300 crores, in a big Make in India push for domestic manufacturing of toys. These upcoming toy clusters are likely to bring efficiency in supply chains for both raw material suppliers and toy manufacturers.  

All the efforts on the part of central and state governments coupled with campaigns such as ‘Vocal for Local’ and ‘Make in India’ will create a robust toy production ecosystem in India. Synergising with the Government’s efforts towards ‘Vocal for Local’ campaign India’s first toy manufacturing cluster in Koppal District, Karnataka by Aequs Infra, a fully integrated Toy Manufacturing Ecosystem would certainly cater to 50% domestic toy market in the country in future.

With such immense growth potential, many investors are considering the toy manufacturing industry as a suitable asset class for capital investment. And, as investors diversify their portfolios, they are planning to increase their investments in this emerging asset class. The toy manufacturing sector is also set to receive investment from domestic and offshore funds as they also look at diversifying their investments.

Acknowledgment 

Savills India would like to acknowledge and thank Aequs Infra for their insights and expertise during research.  Our special thanks to Mr. Kishore Rao, CEO, Aequs Infra for enriching the report with his valuable inputs.