Special Feature - ELP

Gateway to the toy market in India

The Indian toy market is valued at USD 1.7b and is forecast to grow at a CAGR of 4.97% to reach USD 4.4b by 2032. Here, experts from Economic Laws Practice (ELP) share advice on entering this burgeoning market.

Trends in India

Being one of the fastest-growing economies, the Indian middle class represents a rapidly expanding segment of the population, with Indian families investing heavily in education. This is evident from the projected growth of the educational toys market in India, estimated to expand at a CAGR of 14.0% from 2024 to 2030 (India Educational Toys Market Size, Share & Trends Analysis Report 2024-2030, Grand View Research). This holds a promising opportunity for both domestic and foreign toy manufacturers.

Over the past decade, India has transformed into a prominent sourcing base for international toy brands. Leading global toy brands have sought alternate manufacturing hubs away from China, citing concerns over toy quality and the supply chain risks - and India offers a desirable alternative.

Entry of foreign toy brands to India

The entry of foreign toy brands into India can progress through various stages, each representing a different level of commitment and investment in the Indian market:

• Stage 1: Appointment for licensee/distributors (nonexclusive/exclusive)

• Stage 3: Setting up an Indian Limited Liability Partnership

• Stage 4: Setting up a subsidiary in the form of a Private Limited Company

• Stage 5: Setting up own manufacturing unit in India

One approach for foreign toy brands entering the Indian market would be to test the market potential through:

• A distribution agreement with an Indian entity wherein the distributor earns a profit, or

• A franchise agreement with an Indian entity wherein the franchisee earns a fixed fee.

In both of these arrangements, toys are imported into India from a manufacturing facility abroad, and the Indian entity takes on the responsibility of selling and marketing these toys locally. However, such distribution arrangements should incorporate robust terms to prevent tarnishing the brand's reputation. This approach allows foreign brands to gauge consumer interest and market demand without making significant investments in local infrastructure or operations.

Given this, foreign toy brands must familiarize themselves with the essential regulatory and compliance requirements before entering the Indian market. A snapshot:

Bureau of Indian Standards (BIS) certification

• BIS certification is a mandatory quality certification required for toys supplied to the Indian market. This requirement became effective in January 2021 with the issuance of a Toys (Quality Control) Order, 2020 by the Indian Government. Under this regulation, foreign manufacturers intending to supply toys to the Indian market must obtain the BIS licence in advance and mark products with Indian Standard Mark (ISI mark) before supplying them to India. To obtain this licence, foreign manufacturers are required to file a statutory application and undergo audits conducted by BIS officers at their overseas manufacturing facilities. These audits are conducted to ensure and verify compliance with Indian quality and safety standards i.e. IS 9873 which is akin to EN 71 and ISO 8124.

Import-export regulations

• Customs duty: The applicable duty varies depending upon nature of the product. For example, the standard rate of Basic Customs Duty (BCD) on toys covered under Tariff Heading 9503 is 70% for both electric and non-electric toys, whereas the standard rate of BCD for modelling clay is 10%. Additionally, an Integrated Goods and Services Tax (IGST) (VAT equivalent in India) is also applicable at the rate of 12%.

• Import Export Code (IEC): Obtaining an IEC from the Director General of Foreign Trade office is essential for operating as an importer and exporter in India.

• Customs Clearance and documentation: For efficient customs clearance and eligible duty benefits under applicable Free Trade Agreements (FTAs), compliance with customs procedures and documentation is essential. This includes submitting accurate declaration forms and tariff classifications. India is at present negotiating FTAs with the UK as well as with EU.

Legal Metrology and Consumer Protection Laws:

• Legal Metrology Laws: In India, these laws govern the packaging, labelling for mandatory declarations on a retail package and standardization of packaged commodities, including toys sold in the Indian market.

• Consumer Protection Laws: these laws protect consumer rights and guard against unfair trade practices, deficiency of goods and provides for product liability.

Goods and Services Tax (GST):

• Sale of goods or supply of services in India are subject to GST. Currently, toys are chargeable to 12% or 18% GST depending upon the nature of toys.

Upon successful validation of market potential, foreign brands often transition into a phase of increased investment and expanded operations in India, such as:

• Engaging third-party manufacturer to produce toys under the foreign brands’ name

• Setting up its own local manufacturing facilities

Initiatives of the Indian government for local manufacturing

The GoI has introduced strategic initiatives to support India’s toy industry with a special focus on facilitating domestic manufacturing. These include:

• Production Linked Incentive (PLI)

• National action plan for toys

• Scheme of Funds for Regeneration of Traditional Industries

To sum up, this is an opportune time for global toy manufacturers to gain the initial mover's advantage and leverage opportunities in the Indian toy market. However, navigating the Indian regulatory landscape can at times be demanding. To successfully enter and expand in this market, companies should aim to develop a comprehensive strategy that ensures adherence to local regulations while encashing on the growing domestic demand.

Given the interest showcased by the global toy manufacturers in India, ELP is looking to organize a webinar which deals with the above issues in detail with practical insights into the experience of foreign brands operating in the country. Should you be interested in attending this webinar please visit https://bit.ly/3JmGytl.

This article was written by Nishant Shah, partner (nishantshah@elp-in.com); Stella Joseph, partner (stellajoseph@elp-in.com); Prakhil Mishra, senior associate (prakhilmishra@elp-in.com) with inputs from Shubham Bhandari, associate. It provides general information and should not be construed as legal advice. To find out more about ELP, visit www.elplaw.in.