India plays hardball on Chinese toys

New Delhi last week suddenly banned Chinese toy imports for six months, after the Consumer Welfare Association filed a public interest lawsuit. The body cited health concerns posed by Chinese toys, which are suspected of having a high content of lead and other potentially dangerous chemicals.

India's health and consumer affairs ministries are now working on a set of mandatory health standards for both local and imported toys. But while the safety issue is cited as the main reason for the ban, the move will undoubtedly boost India's own toy industry, which has watched China grab 60 per cent of the domestic toy market.

"The case of toys is a case of multiple interests at work," said Subir Gokarn, chief Asia-Pacific economist for Standard & Poor's. "The domestic industry is completely non-competitive with respect to [the] Chinese, and they have been finding themselves hammered."

Shares in one Indian toy company, Hanung Toys, soared 20 per cent after the ban, and some analysts have suggested that demand for Indian-made dolls, stuffed animals, puzzles and other playthings could surge by 30 per cent.

While consumers and traders express dismay, pleas from Indian manufacturers – struggling to compete with an onslaught of cheaper Chinese imports – for similar protection may find a more receptive audience among New Delhi's political parties.

"The protectionists were on the run until a couple of years ago, but now they are back in the reckoning," said Mr Gokarn, adding that they were "not powerful enough or co-ordinated enough to pose a serious threat".

India, which for decades after independence espoused economic self-reliance, has opened considerably to foreign investment and trade since it began its cautious liberalisation in 1991. Today, India's trade is equivalent to around 37 per cent of gross domestic product, nearly double what it was 20 years ago. China is India's largest trading partner.

But Indian manufacturers of low-end, unbranded goods – such as cheap toys, garments and basic electrical products like doorbells and switches – are reeling from the competition.

Where new opportunities present themselves, New Delhi could take measures that give their domestic industry a bit of breathing room.

"I don't think it has reached a stage where there will be enough momentum for people to say 'let's turn things back,'" said Mr Gokarn. "But the pro-reform politicians are going to have to be a little careful about the positions they take and how they communicate their agenda."

Copyright: The Financial Times Limited 2009