The truth about India’s booming toy exports – Protectionism or Productivity? | 24 January 2024 | UPSC Daily Editorial Analysis

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What's the article about?

  • It analyzes the factors behind the phenomenal growth of the India's toy industry.


  • GS2: Government Policies and Interventions for Development in various sectors and Issues arising out of their Design and Implementation.
  • GS3: Effects of Liberalization on the Economy, Changes in Industrial Policy and their Effects on Industrial Growth


  • India's toy industry, once a mere shadow on the global stage, has undergone a dramatic transformation in recent years.
  • From being a net importer, it has catapulted to the position of a net exporter, witnessing a staggering 239% increase in exports and a 52% decline in imports between 2014-15 and 2022-23.
  • This remarkable turnaround, particularly in a labor-intensive industry facing global headwinds, has sparked a crucial debate: is this a testament to India's burgeoning domestic capabilities, or a mirage conjured by protectionist measures?

Protectionism in Trade Explained:

  • Protectionism in trade refers to government policies that aim to restrict imports from other countries, primarily to benefit domestic industries and economies.
  • These policies are implemented through various tools, the most common of which are:
    • Tariffs: Taxes imposed on imported goods, making them more expensive than domestically produced alternatives.
    • Import quotas: Limits on the quantity of certain goods that can be imported.
    • Subsidies: Financial assistance provided to domestic producers to help them compete with cheaper imports.
    • Non-tariff barriers: Non-monetary restrictions such as complex customs procedures, safety and health regulations, or environmental standards, applied in a way that hinders imports.
  • Proponents of protectionism argue that it can:
    • Protect jobs: By making foreign goods less competitive, protectionism can encourage domestic companies to hire more workers.
    • Boost infant industries: New or struggling industries can be shielded from foreign competition until they mature and become more efficient.
    • Improve national security: Protecting strategic industries can ensure their survival in times of crisis.
    • Reduce trade deficits: By limiting imports, a country can improve its trade balance.
  • However, critics of protectionism argue that it can:
    • Raise consumer prices: Tariffs and quotas make imported goods more expensive, which harms consumers.
    • Reduce consumer choice: By limiting the availability of imported goods, protectionism can lead to less variety and higher prices for consumers.
    • Hinder economic growth: Trade barriers can lead to less competition and innovation in the domestic economy.
    • Increase retaliatory measures: Other countries may impose tariffs or quotas on exports from the protectionist country, leading to a trade war.

Productivity in the Economy Explained:

  • In economics, productivity refers to the efficiency of how an economy transforms inputs (resources) into outputs (goods and services). Simply put, it's about how much is produced with a given amount of resources.
  • Think of it like this: imagine a baker making bread. Their productivity would be measured by how much bread they can bake in a certain amount of time with a specific amount of flour, water, yeast, and energy. Higher productivity means more bread for the same amount of inputs (or the same amount of bread with less inputs).
  • There are two main ways to measure productivity:
    • Labor productivity: This measures the output per unit of labor, often calculated as GDP per hour worked. In our baker example, this would be the number of loaves baked per hour.
    • Multifactor productivity (MFP): This takes into account all inputs, not just labor, and measures the output per unit of combined inputs. For the baker, this might consider not just labor hours but also the efficiency of the oven, the quality of the ingredients, and even their organization in the kitchen.
  • Why is productivity important?
    • High productivity is key to economic growth and rising living standards. It leads to:
    • Increased output: More goods and services produced means more are available for everyone.
    • Lower prices: With production becoming more efficient, goods and services can be produced cheaper, leading to lower prices for consumers.
    • Higher wages: As businesses become more profitable, they can afford to pay workers higher wages.
    • Improved competitiveness: In a globalized world, economies with higher productivity are better equipped to compete in international markets.
  • Factors that affect productivity:
    • Technology: Innovations and automation can make production processes more efficient.
    • Education and skills: A skilled workforce can apply knowledge and technology effectively.
    • Investment in infrastructure: Good transportation, communication, and energy systems facilitate efficient production and distribution.
    • Institutional factors: Efficient legal systems, property rights, and regulations can create a stable and predictable environment for businesses to operate.
  • Challenges to productivity growth:
    • Ageing populations: In many countries, the workforce is aging, which can lead to a slowdown in productivity growth.
    • Income inequality: High levels of inequality can reduce incentives to work hard and invest in skills.
    • Declining investment: Inadequate investment in research and development and infrastructure can hamper technological advancements and efficiency improvements.
  • Improving productivity is a complex but crucial task for policymakers and businesses alike. By understanding the factors that affect productivity and implementing appropriate policies and strategies, economies can unlock their full potential and ensure continued growth and prosperity for their citizens.


  • Protectionism: The Engine of Growth?
    • Proponents of the “Make in India” initiative credit the policy with fueling this export surge. However, a closer look at the data paints a different picture.
    • The timing of the turnaround coincides suspiciously with the implementation of protectionist measures such as tripling import duties from 20% to 60% in 2020 and the imposition of non-tariff barriers like mandatory quality control orders.
    • This coincided with the global supply chain disruptions caused by the COVID-19 pandemic, further hindering imports.
    • Furthermore, the dip in net exports observed in 2022-23 as global supply chains normalized further strengthens the argument for protectionism. When the external pressure eased, imports rebounded, exposing the fragility of the export gains achieved through protectionist walls.
  • The IIM-L Study:
    • An unpublished study by the Indian Institute of Management Lucknow (IIM-L), sponsored by the Department for Promotion of Industry and Internal Trade (DPIIT), claims to provide evidence of “Make in India” driving the export surge.
    • However, the lack of public access to this study casts a shadow of doubt on its conclusions.
    • Transparency and open dialogue based on readily available data are crucial for informed policymaking and avoiding the pitfalls of self-congratulatory narratives.
  • The Productivity Paradox:
    • Stagnant Growth: While the IIM-L study suggests a surge in domestic production, official data from the Annual Survey of Industries (ASI) paints a different picture. Between 2014-15 and 2019-20, fixed capital per worker and gross value of output barely budged.
    • Productivity Plunge: Even more concerning is the decline in labor productivity. The latest ASI data reveals a worrying drop from ₹7.5 lakh per worker in 2014-15 to ₹5 lakh in 2019-20.
    • Pre-Policy Stagnation: Export growth, however, did not show any significant change before and after 2014-15, further undermining the claim of policy-driven success.
  • Learning from the past:
    • While limited protectionism can provide breathing space for nascent industries, relying solely on such measures is a risky proposition. It can breed complacency, stifle innovation, and ultimately lead to rent-seeking behavior (as Anne Krueger famously cautioned).
    • India has witnessed such policy failures in the past, and the toy industry needs to tread cautiously to avoid succumbing to the seductive trap of entrenched protectionism.
  • The Road Ahead: Building on Solid Ground
    • India's toy trade turnaround is a positive development, but it needs to be built on a foundation of genuine domestic competitiveness. This requires a multi-pronged approach:
    • Investing in infrastructure and skill development: To boost productivity and quality, creating well-equipped industrial clusters and providing targeted training programs are crucial.
    • Encouraging innovation and design: Fostering a culture of creativity and design-led manufacturing will differentiate Indian toys in the global marketplace.
    • Data-Driven Policymaking: Transparency and evidence-based policy decisions are essential for navigating the complex dynamics of the toy industry.
    • Embracing transparency and fair competition: Open data, regulatory transparency, and a level playing field for domestic and foreign players will foster healthy competition and drive continuous improvement.

Way Forward:

  • India's toy trade turnaround presents a unique opportunity to build a thriving domestic industry. However, it must resist the temptation of quick fixes and instead embark on a path of sustainable growth, fueled by genuine productivity and a spirit of open competition. Only then can the “Made in India” label truly resonate with quality, innovation, and global competitiveness.

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