The recent COVID outbreak has worsened the state of global supply chains, which had barely recovered from the onslaught of geopolitical tensions. As a response, the government’s recent push for ‘self-reliance’ is an important step towards de-risking India’s supply chains by boosting domestic manufacturing in import dependent sectors such as toys. Prime Minister Narendra Modi, during his 68th edition of ‘Mann Ki Baat,’  further galvanized the need to be ‘Vocal for Local’ by positioning India as a global toy hub to cater to the domestic needs as well as tap in to the global market opportunity which is currently worth $90 Bn.

Indian Toy Market

With 26% of the population under the age of 15 , the the domestic toy demand is forecasted to grow at 15-20% CAGR between 2020 and 2025 as against the global average of 5%. .The domestic market offers  a wide array of both modern and traditional Indian toys. However, the trend has shifted from authentic Indian toys to innovative automated ones in recent years. The toy industry in India was estimated to be around $1.75 Bn in 2019 and is expected to reach $3.3 Bn by 2024 catalyzed by the country’s strong economic growth. However, over 85% of the local demand for toys is still met through imports from China and other countries. The key reasons are the price-sensitiveness of the Indian market and the lack of an organized structure in the sector to resolve issues like distribution network and availability of labour and capital loans. 

The sector, however, is witnessing a shift towards domestic manufacturing because of government initiatives such as Make in India, schemes for MSME loans, and the growing local demand for high-end Indian made toys driven by rising disposable incomes. The rise of e-commerce platforms has further supported the local players through their online channels which are among the fastest growing distribution networks for toys in the country.

India has the potential to globally realign itself as a prime destination for toy manufacturers looking to optimize their supply chains. The Indian toy ecosystem affords access to low labour costs and its talent pool, with 4-5 lakh trained artisans, making toys a part of  the Indian cottage industry. Being the world’s 2nd largest producer of polyester and related fibres and with the availability of key raw materials such as metals, plastics, rubber and wood pulp, India possesses the capabilities to increase its share in the global value chain.

The central government has already hiked the import duty on toys by 200% to support local MSMEs and promote domestic manufacturing. However, further government support through labour reforms, fiscal incentives, plug and play facilities and technology upgradation support is necessary to aggregate investments in the domestic toy industry. Karnataka government’s recent proposal of the Koppal Industrial Cluster Scheme to empower the toy manufacturing sector in India is a case in point. The scheme aims to boost the (unorganized) toy industry in India by creating the country’s first toy cluster in the Koppal district of the state.

Karnataka’s Toy Industry

Karnataka has a legacy for toy making. Channapatna toys of Ramnagara district and Kinhal toys from Koppal district are a particular form of wooden toys native to Karnataka. These traditional crafts are also protected as a geographical indicator (GI) tag under the World Trade Organization. Karnataka is currently the third-largest market for toys in India ($159 Mn) and forms around 9% of the national market. The industry is supported by the mature ecosystem built on robust supply chain networks and skilled manpower.

Karnataka has a growing ancillary ecosystem for toy manufacturing. The state government has built and nurtured the  domestic ecosystem to support the industry by setting up Tool Manufacturing & Precision Engineering (TMTP) and polymers and electronics manufacturing clusters in Bengaluru, Dharwad, Tumkuru and Mysuru to address the moulding and raw material requirements of the industry. Additionally, the state’s robust design capacity and testing certification agencies in Bengaluru, Dharwad and Koppal and Government Tool Room & Training Centre (GTTC) strengthen its position to emerge as the leading toy manufacturing cluster in the country. Karnataka is also home to a 600,000 sq. feet facility set up at the aerospace SEZ in Belagavi city for manufacturing plastic toys.

Cheap and semi-skilled labour is key to this industry and Karnataka has abundant potential. The government has also undertaken significant reforms and skill development initiatives by setting up several institutions and R&D hubs to support the talent needs of the industry. Currently, the state has the 4th largest skilled workforce in India.

The aggressive efforts undertaken by the state government has supported the toy industry in the state to grow at a CAGR of 18% from 2010 to 2017 and is expected to reach $310 Mn by 2023.
 

Koppal Toy Manufacturing Cluster

To strengthen its industrial ecosystem and increase its manufacturing capacity, Karnataka government launched the Product Specific Industrial Cluster Development Program, a first of its kind initiative in the country. The Koppal toy cluster, developed in partnership with Aequs Infra, provides state of the art industrial infrastructure with power, water, internal roads, and waste disposal facilities and common facilities like customs, security, and a Centre of Excellence. The integrated manufacturing facility will support plastic and electronic toy manufacturers in design, moulding, assembly, painting, and packaging. The cluster provides a built to suit, self-sustained ecosystem spread over 400 acres of land, including a SEZ to serve export markets and domestic tariff area (DTA) for the domestic market. It has the potential to create 40,000 jobs in five years  and attract over INR 5,000 crore in investments. Apart from the incentives on capital and tariffs which will be offered to the investors, the government will also provide need-based skill development assistance to the employees. Key fiscal incentives of the scheme are as follows:

A strong support system:

The toy cluster aims to capitalize on the presence of key elements essential for the sector’s growth like manpower, R&D, raw material etc. Koppal is already famous for its Kinhal toys and has an artistic heritage. This gives an easy access to a huge pool of affordable skilled and semi-skilled labour. Presence of 52 industrial training institutes and 5 polytechnic institutes in Koppal along with design and R&D institutes such as NID Bengaluru, IIT Dharwad, further serve the need for skilled human resource for this labor-intensive industry. Recent relaxation in the labor reforms such as provision for industry to avail 'Fixed-term employment' to optimize labor capacity, further caters to the seasonality of the toys industry. There exist a good number of small and large-scale industries in the district which will also support the raw material requirement of the cluster.

The cluster is also in a strategic position to cater to 50% of the domestic toy market needs. It has an efficient network of connectivity with access to highways, ports, airports, and major cities. Hubballi, a major trading hub in the northern part of the state is also closely located. Major networks which support the supply and export infrastructure of the cluster are:

National Highways: Bengaluru, Mumbai and Chennai via NH48, Hyderabad via NH44
Seaports: JNPT, Mumbai, Vishakhapatnam and Chennai
Airports: Bengaluru- 373 kms, Hyderabad- 391 kms, Jindal Vijaynagar (domestic)- 73 kms
Railway: Bengaluru Bellari-Gadag-Hubballi line, Koppal railway station

The Koppal toy manufacturing cluster promises to be a one-stop shop solution catering to the needs of both large MNCs and small and medium enterprises. The cluster is a testimony to Karnataka’s commitment to lead India in becoming the toy manufacturing hub of the world.

To support investors in their investment journey, Invest India has a specific desk dedicated to facilitating investments in the state of Karnataka. Our team may be contacted at karnataka@investindia.org.in.

This article is written by Rohit Dua.