Matchbox Manufacturing in India: The Double Burden of Domestic Competition and Volatile Input Costs

Author: Yashoroop Dey
Editor: Soumya Singhal

In a letter dated September 2022, Tamil Nadu Chief Minister M.K. Stalin urged the Union Minister of Commerce and Industry to ban the import of single-use plastic lighters immediately. This demand came against the increasing competition the domestic matchbox market faces from the imported cheap disposable plastic lighters from China. Stalin commented that the matchbox industry in Tamil Nadu was going through a “difficult phase.” Further, he highlighted how the Indian matchbox industry faced stiff competition from Indonesia and Pakistan in export markets due to Covid-disrupted supply chains. Therefore, the price of a matchbox was revised from Re 1 to Rs 2 in October 2021. However, even a year later, this increase has not addressed the concerns around livelihoods and the financial viability of input costs in this sector. Despite higher revenue per matchbox owing to higher prices, the sector remains financially strained due to increasing input costs and competition in the domestic market. In light of these developments, this article discusses matches as highly substitutable goods, contextualised against the nature of matchbox manufacturing in India. 

The South Indian Match Manufacturer’s Association raised a similar demand to ban cheap imports in June 2022. They had held a 12-day strike in April regarding the rising input costs in matchbox manufacturing. The strike sought to draw attention to the steep increase in raw materials prices. A similar strike was held in 2021. However, even with a price increase in October 2021, the pressure on this sector has not adequately been offset. During the April 2022 strike, the Tamil Nadu government declared that it would procure wax for manufacturers and efficiently distribute it to ease some pressure from the disruptions in supply chains due to the Russia-Ukraine war. However, competition from other goods and imports continues to pressure this sector. 

The Indian matchbox manufacturing industry faces the double burden of stiff competition in the home and export markets and uncertainty regarding input prices due to global events. Even with structural assistance such as subsidising inputs, raising prices, and procuring materials through the State, the pressures faced by this sector are caused by global supply-side factors. 

The matchbox industry in India is particularly susceptible to such phenomena due to its nature and the type of product that a matchbox is. In economic theory, goods such as matches are considered highly price-inelastic. Since they make up a significantly small section of a consumer’s expenditure, the consumer is likely to not be affected by changes in the price of the product. Therefore, a consumer purchases the same amount as before. In such a case, one would expect significant improvements in the industry’s financial condition with an increase in the price of matches and the number of matches sold remaining the same due to inelastic demand. However, due to no regulation on the import and sale of disposable lighters, matchboxes in India are also a highly substitutable good. High substitutability implies that many easily available alternatives to matches are equally efficient and cost-effective for the consumer. Disposable plastic lighters imported from China are increasingly substituting matchboxes in the domestic market. These lighters cost around Rs 10-20 and can replace several matchboxes for the consumer. Any expected improvements in the sector’s total revenue by increasing the price of an inelastic product are affected by higher rates of product substitution. If the high substitution effect is stronger, any gains from price increases are not felt as consumers merely shift to purchasing alternatives such as lighters. It seems that in India, stiff competition and the relative ease of using cheap lighters have decreased the overall purchase of matchboxes in the domestic market. 

The matchbox manufacturing industry is labour-intensive and concentrated largely in Tamil Nadu. Further, over 90% of the employees in this sector are women. The labour-intensive nature of this sector indicates that labour input costs make up a significant part of the total cost and are subject to socio-economic limitations of inflation in living costs and labour productivity. Inflation in living costs weakens the purchasing power of the household if the wages remain stagnant. Thus, rising living costs lead to a demand for higher wages, which further raises the input costs for a labour-intensive sector. However, a more significant aspect of the industry’s labour intensity is its crucial socio-economic importance for Tamil Nadu. Various local communities and small-scale industries are involved in this sector and depend on it for livelihood. The societal significance of this sector makes it socio-politically unviable to push the industry towards being more capital-intensive to decrease input costs, as it may result in significant job losses. Thus, while there is a need for this industry to optimise the manufacturing processes, costs, and supply chain for matchboxes, livelihoods and local communities must also be protected. The commitment to the socio-economic importance of the industry for local livelihoods is crucial in ensuring healthy working conditions and fair wages without creating a black market for underpaid or illegal labour. 

The discussion so far highlights the need for a multidimensional approach to protecting the matchbox manufacturing industry and the livelihoods of its workers. Beyond the domestic market, there is potential to make Indian matchboxes more competitive and widely available in foreign markets. Indian matchboxes can be more export competitive by increasing the export incentive, especially during times of stress and heavy competition in domestic and foreign markets. In 2020, the export incentive was decreased from 4 to 1.5%, leaving many manufacturers upset as they now received a significantly lower reimbursement of manufacturing costs. 

Further, as M.K. Stalin suggested, it is imperative to protect the industry from competition in the domestic market. Since matchboxes are highly substitutable while remaining inelastic, the competitive foothold of the domestic industry must be increased while ensuring that the price of matchboxes remains the same. Disposable lighters burden the environment. They are almost entirely non-biodegradable while simultaneously being competitively cheap and efficient, creating plastic waste-generating consumer behaviour and habits. The debate over whether matches or lighters are more environmentally friendly is not new. Many countries believe that a sustainable matchbox sector with greater reliance on cardboard instead of wood is much better for the environment than disposable plastic products. 

Thus, there is room for policy changes in the Indian matchbox manufacturing sector through actively promoting livelihood-oriented sustainable products over environmentally harmful cheap imports. This approach to the matchbox industry can be incorporated with the larger national Make in India endeavour, resulting in a more focused interest in this sector among consumers. Such an interest that ties in with national socio-political discourse and endeavours may change consumer behaviour away from cheap and imported alternatives. Such promotion, coupled with strict regulation of cheap imports of disposable lighters, stands to make the industry more competitive, not just through price but also environmental and cultural conscience.

Assisted by Bhamini Rathor.