Homes and gardens

The import duty hike could make India no country for foreign toys

While importers and retailers protest the 60% customs duty on toys, others wonder if this couldn’t be a stepping stone to something new

The Child — aka Baby Yoda from Disney+’s The Mandalorian — was a big draw at the recent New York Toy Fair. Hasbro’s animatronic doll joined Lego’s buildable Star Wars Razor Crest ship on the popularity charts, for both adults and kids. Fans who visited the Big Apple in February have either pre-ordered or brought them back, but for the rest of us the toys may not feature on our shopping lists any time soon. The reason: the already expensive toys have become prohibitively so after the new 60% import duty on toys (up from the earlier 20%) that has come into effect after the budget.

Needless to say, it is a blow to India’s $1.5 billion toy industry, where 85% of what’s sold is imported. The impact is already showing. Wholesale markets have hiked costs (between 15% and 35%) and industry watchers claim sales have declined by a quarter in February. “People are price sensitive; they stick to budgets. If a remote-controlled car goes up from ₹499 to ₹673, people may not buy it. So, think about a ride-on car that commands ₹10,000. It will go out of sale,” says Vikas Nahar, importer and secretary of the Tamil Nadu Toy Dealers’ Association, who supplies to retail chains like Hamleys, Toys R Us, and online platforms such as Amazon.

Covid-19 in the mix
  • On the one hand you have the hike and on the other, the coronavirus. “At the moment, the effects of the virus are much higher,” says Kukreja. “Materials are not coming in because of restrictions imposed by both the Indian and Chinese governments. So, we’ll know the full impact [of the tax] only once the panic dies down.”

Ground reality

A quick visit to a Hamleys outlet in Chennai doesn’t throw up any red flags though. There’s decent footfall for a Wednesday evening and the price tags seem no different from a month ago. The store manager tells me it is because they are still retailing the merchandise they had in stock. “Once the new imports come in, the prices will change,” he shares. But is he fielding anxious questions from customers? “No, not too many people seem to know about it.”

The import duty hike could make India no country for foreign toys

This will change soon. Especially since many predict that the prices at outfits like Hamleys will be higher than that at wholesalers. “It can double at organised retail stores,” predicts Manish Kukreja, CEO of toy company Shinsei and president of The All India Toy Manufacturers’ Association, one of many urging the government to rethink the hike. “Something that cost ₹4,000 in January can now be marked up anywhere between ₹7,000 and ₹9,000. The appreciating dollar isn’t helping things either.”

Rent your Lego, instead
  • Rental services like Funstation might find more takers now. The Mumbai-based outfit, with over 2,000 registered customers, ships Lego sets across the country. “We charge 1/5th of the market price. So if a set costs ₹10,000, we charge ₹2,000,” says founder Kashyap Shah. While the new customs duties will make inventory more expensive (they add 10 to 12 new sets every three to six months, keeping up with new launches), he says it could be good for business. “We will not be hiking our prices. Since Lego is already one of the most expensive toys in the market, as prices go up, parents will be looking at alternatives like ours. We’ll just need to do more rent cycles to cover our costs [what we did in five cycles, now we’ll need eight or nine].”
  • Meanwhile, on the gender scale: Young boys like the Lego City, with models depicting cities and services such as police stations, airports, trains, etc. The girls, on the other hand, are gravitating towards Lego Friends (construction toys with salons and water slides) and Disney Princess.

Also, as Indian consumers are cut off from ready access to a wider range of international brands, many fear alternative channels may crop up. Rahul Goel, MD of Trucare India, the exclusive distribution partners of brands like Lego, Disney and Playgro, cautions, “This could encourage [unscrupulous] imports, like the old days, when everything used to come through the grey channel. The hike could encourage such a parallel economy. That’s a risk.”

 

Think homegrown

The obvious solution is boosting local manufacturing. But the challenges, it seems, are plenty. Lack of infrastructure and government support are making people shy away from investing in R&D; they’d rather copy a successful product. “I’ve been working on a new project for the last 18 months and I will start production soon. But I know in six months, there will be a rip off,” says Kukreja, whose company makes toy cars, planes and the like.

The import duty hike could make India no country for foreign toys

At the moment, there is an upswing of manufacturing in categories like STEM and educational toys. But they are a small part of what’s on store shelves. Their consumption is low — mostly picked up by schools and learning centres — so the few companies that make them are exporting. “The Indian toy market is about 0.5% of the world’s toy market,” says R Jeswant, VP Sales & Marketing, Funskool India Ltd. “Awareness is also poor; it is only now that we are seeing a first generation of parents who have had exposure to branded toys during their childhood.”

Competing with China

What sells, instead, are battery-operated toys, large play sets, and games patented in the US and the UK. And the quality of their Made in India counterparts is not comparable. “Until consumption goes up, there won’t be R&D and international-standard manufacturing,” says Nahar, adding that this is where a more phased approach would have been beneficial. “China became the world’s largest toy manufacturer [85% of the toys India imports is from them] because of the government’s focus. They’ve built entire towns around thousands of factories, creating a symbiotic ecosystem,” he says, explaining that India doesn’t have similar infrastructure. “I’m interested in manufacturing too, but what has the government done to help manufacturers? For example, if I want to make a ride-on car, a single mould would cost me around ₹1 crore. Then, I’ll need to import the parts, as most of them aren’t available locally. I won’t be able to recover my cost.” (The Ministry of Commerce and Industry hadn’t responded to our query at the time of print.)

Funstation founders Kashyap and Hetal Shah

Funstation founders Kashyap and Hetal Shah  

200% hike
  • The new import duty may be 60%, but critics point out that with APTA — the 43% discount enjoyed between members of the Asia-Pacific Trade Agreement (India, China, Korea, Lao People’s Democratic Republic, and Sri Lanka) — the actual tax levied on a huge segment of imported toys will be lesser. But Farooq M Shabdi, president of the United Toys Association, disagrees. “We’ve always had the APTA benefit. But where we paid around 11% tax earlier [after the discount], now it will be 34.2%. So, if you calculate, it is still more than a 200% hike, which will increase inflation,” he says.

The consensus is that the government is trying to do too much, too fast. “Duties are a deterrent; you are not encouraging the industry if the market shrinks. A three-year plan would have been better, where the government strengthened our infrastructure, gave us access to cheaper power and loans, and good technology,” says Kukreja. He gives the example of Toshiba machine he’d picked up recently, with a loan from SIDBI (Small Industries Development Bank of India), which has him paying over 9% as interest. “But the government has a scheme for the Khadi Gramodyog with just 4% interest. If MSMEs [Micro, Small and Medium Enterprises] like mine had that option, I could put up a machine that cost ₹10 lakh, with only ₹40,000 as annual interest, which barely comes up to around ₹3,000 a month. Imagine how much I could scale up my machines,” he concludes.

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Printable version | Mar 31, 2020 6:05:26 PM | https://www.thehindu.com/life-and-style/homes-and-gardens/the-import-duty-hike-could-make-india-no-country-for-foreign-toys/article31060977.ece

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