Indian Leather Industry Overview
India accounts for approximately two percent of the world trade in leather and leather products. To be on the fast track of growth and to have a larger cake in the international business, continuous technology up gradation and modernization are the most powerful driving forces like in any other manufacturing sector that dreams steady growth and expansion. With this being the primary objective, India's Council for Leather Exports (CLE) has taken a number of initiatives. To propel the combined efforts of the tanning and manufacturing sectors, the Central Leather Research Institute (CLRI), the Fashion Technology and Development Institute and CLE as the main cog in the wheel, an action plan has been chalked out. The growing international demand apart, the action plan also suggested measures to face Indian leather's industry's major competitors in Asia: China, Indonesia, Korea and Taiwan.
To boost the country's leather industry, the Indian federal government has earmarked a Rs 4.5 billion (US$ 95 mn) grant to be made available to the industry over a span of five years but that's not without any string. The fund availability is conditional upon the sector's attracting an annual investment of Rs 2.2 trillion. In 2002, investments in the leather sector stood at Rs 410 million. Footwear and their components account for about 25 percent of India's total leather products exports. These two markets also offer Indian leather industry vast scope for exports of saddler and harness.
Besides the European market where Indian leather products already enjoy a strong presence, the US too is emerging as a very strong and promising export destination for Indian leather industry. US today accounts about 25 percent of a massive US$ 96 billion global trade in leather and leather products. The importance of European market could be gauged by the fact three major EU countries-Germany, Italy and UK- today accounts for approximately 42-45 percent of leather and leather products exports from India. These three countries together exported leather products worth US$ 814.82 mn in 2001-02 against country's total leather and leather products exports valued at US$ 1.93 bn.
CLE is trying to make a dent in new markets. Focus countries include the Latin American countries, Israel and Japan. Japan is the fifth largest importer of leather & leather products in the world. Japan now imports over US$15 million worth leather and leather products from India. In fact, between 1998-99 and 2001-02, India's exports leather products to Japan have more than doubled. According to the latest available provisional data, exports in the first 10 months in fiscal 2002-03 to Japan stood at US$ 7.53 mn against US$ 7.30 mn during the comparable period of 2001-02. CLE aims at raising India's share in Japan's total imports of leather and leather products to 2 percent by 2005-06 from the current level of 0.5 percent which in other words means forex earnings to the tune of US$ 70 mn in next three years from the 2001-02 level of over US$ 15 mn.
According to a CLE report, the domestic production of leather & leather products in Japan is declining largely due to high production cost. This has opened up a great scope for increasing India's share in Jao leather market. The Japanese market offers great scope for export of middle price ranges of shoes, garments and other accessories as upper segments are already dominated by Italy and China.
Italy is yet another favored export destination for Indian leather industry. Through joint ventures with Indian companies, CLE has helped bring in Italian leather footwear manufacturers to set up export production bases in India. In fiscal 2001-02 India exported US$ 262.49 mn worth of leather and leather products against US$ 241.07 mn in 2000-01 to Italy. The global downturn however like other sectors had severely impacted leathers exports by India. The first 10-month exports to Italy too showed a slow growth. Exports during this period in fiscal 2002-03 stood at US$ 132.21 mn against US$ 151.90 mn year-on-year basis. It is unlikely the year attained the US$ 2-billion-target set for fiscal 2002-03.
India is the second largest footwear producer in the world. It accounts for 20 percent of India's total export of leather and leather products. Major markets include the UK, USA, Germany, Italy, France, Netherlands, Canada, Sweden and Russia. Of total exports of footwear from India, around 64 percent goes to UK, USA and Germany.
Indian leather industry has capacity to produce l776 million pairs; 112 million pairs of Shoe Uppers; Non-leather footwear - 960 million pairs of non-leather footwear's which includes shoes made of rubber, molded PVC and other material.
India's new Export-Import policy for 2003-04 has among others gone in favour of leather industry. CLE chairman S S Kumar maintains: "As far as leather & leather products are concerned, the changes made in the EPCG Scheme in regard to criteria of export obligation on the basis of duty saved, allowing import of 10 year old machinery, and permitting import of spares for existing plant & machinery etc would make the scheme more attractive and useful. Further, allowing the exporters to export any other products in fulfillment of export obligation under the scheme is a major step forward and would provide greater flexibility in a ailment of the scheme. The industry welcomes these measures".
The lowering of value addition norms under the DFRC Scheme from 33% to 25%would benefit the exporters and the industry feels that extending the benefit of the scheme to deem export is a right step encouraging the domestic suppliers of raw materials and inputs to the exporters. CLE is of the view that the duty free import entitlement benefit extended as a premium to the status holders achieving higher growth rate of more than 25% in FOB value of export in free foreign exchange, will encourage the status holders towards attainment of the incremental performance. "The status holders would now be able to achieve competitive levels of production by such duty free entitlement", Kumar maintains adding "allowing annual Advance licensing facility to the status holders will enable such units to go for planned procurement of raw material and components based on annual production programme".
Over the years, DEPB scheme proved to be really beneficial to the exporters as an instrument of export promotion. However, the DEPB rates in respect of a few items like leather garments, leather bags, small leather goods, leather sandals, non leather footwear etc have now been reduced by 1% to 2% due to general reduction in the basic customs duty from 30% to 25% in the Union Budget 2003-04. Kumar says "The present reduction in the DEPB rates would definitely impact the export of these items particularly since the overall export performance is showing a sluggish trend.
In fact, the Council earlier made a specific representation to the Government specifying that the reduction in peak rate of duty has only negligible impact on the average customs duty incidence since most of the inputs used by leather & leather products industry were already under confessional import duty of 25% for the past several years, and pleaded to continue the DEPB rates without any reductions. Despite this, DEPB rates have now been reduced". The CLE chairman hopes that the new EXIM Policy would help achieve the US$ 2.6 billion target to be achieved by 2006-07.
According to DGCI&S provisional estimate, India's leather and leather products exports in fiscal 2002-03 stood at US$ 1.81 billion signifying 6.30 percent decline from previous fiscals total exports of US$ 1.93 bn. While leather and leather footwear exports showed positive growth, exports of footwear component registered negative growth. Exports of leather in fiscal 2002-03 grew by 6.24 percent at US$ 487.91 million from US$ 459.25 mn in fiscal 2001-02. Leather footwear exports were up 3.61 percent at US$ 409.67 mn against US$ 395.39 mn in 2001-02. However, exports of footwear component in 2002-03 dropped by over 26 percent to US$ 171.43 mn from US$ 233.94 mn in 2001-02.
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