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Economic Crisis & Indian Footwear Industry:

Impact, Results & Solutions

 

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‘World Economy Suffers Terrible Meltdown’.

‘Unemployment touches new heights’

‘US lost hope at least for the next three months’

 The above given statements were actually the headlines from major news papers and sources a couple of months back, that made them quite common to a lay man who rarely bothered about stock market, sensex, nifty, and other terminologies related to nation’s economy and capital related matters. All the sequence of action that took place in the global economy shocked the world; even the most powerful nation couldn’t avoid it.

Needless to say that sector like IT, pharmaceuticals, hospitality, automobiles, transportation, banking, garment, etc. experienced a heavy slump. People got unemployed, many of them committed suicides, businesses got slow down, nation’s progress rate even decremented by heavy percentages. But, footwear sector is among those very few sectors that however managed to sustain the business even in the time of global meltdown. This sector not only managed to continue earning revenue, but also managed to cut down the increasing rate of unemployment. However, considering Indian footwear industry as a part of leather sector, it suffered heavy losses (in the terms of loss to tanneries, leather processing, leather export, retail etc.), as compared to the sectors like IT, infrastructure, pharmaceuticals, hospitality, automobiles, etc., nation’s footwear industry definitely proved itself to keep the hope of growth high.

Percentage of Share of Leather Products in Export Performance (2007-08).

[Credit: Council for Leather Exports, http://www.leatherindia.org/]

 

 

Country-wise export of Footwear from India – 5 years

 

 

 

 

(Value in Million US $)

CAGR

Country

2003-04

2004-05

2005-06

2006-07

2007-08

Growth %

Germany

146.23

164.73

170.97

217.23

245.92

13.87%.

UK

154.44

192.62

195.78

208.2

240.77

11.74%.

Italy

107.65

103.63

134.35

186.11

226.10

20.38%.

USA

89.17

107.34

131.07

127.15

136.01

11.13%.

France

50.84

64.84

74.48

99.81

115.24

22.70%.

Spain

38.06

46.86

63.7

64.57

75.22

18.56%.

Netherlands

20.09

20.03

32.96

48.57

72.49

37.82%.

Portugal

15.12

18.75

22.15

35.03

36.86

24.95%

UAE

14.94

18.36

25.78

34.64

36.61

25.11%

Denmark

11.7

13.75

18.37

14.65

17.44

10.49%

Australia

8.44

8.00

11.58

10.11

12.48

10.27%

Sweden

6.29

6.95

6.77

7.99

12.04

17.62%

Canada

8.71

9.84

11.95

10.91

10.41

4.55%

South Africa

7.23

6.72

8.26

12.11

8.54

4.25%

Japan

2.01

2.55

3.17

3.07

4.63

23.19%

Others

86.81

125.8

133.9

156.76

225.07

26.89%

Total

767.73

910.77

1045.24

1236.91

1475.83

17.74%

Source: DGCI&S, http://www.leatherindia.org

 

 

 

 

 

 

Reasons for Meltdown in the Indian Economy and Impact

The elementary reason for the slump that recently occurred in the country’s economy was that, initially it was US, UK and other developed nations that suffered heavy breakdowns in their economy, although that point of time, Indian economy was on a better side. Unfortunately, the investors thought that their investment in India could in problem due to economic slump, as India depends quite much over developed nations like US for its profitability. As a result, the investors withdrew their money from the Indian market that was supporting the economy at a great level. The result was obvious, i.e., meltdown in the economy. In simple words lack of trust over Indian market was the reason for economic slump in the country.

Now, talking about leather and footwear industry. In export market, the buyers from UK, Germany, US, Spain, etc. withdrew or cancelled their orders from Indian export houses, resulting in the absence of production, ultimately creating unemployment.

In domestic market, footwear retailing suffered a lot.

The present credit crisis in the US and the European Union has resulted into a liquidity slump; as a result, the industries won’t be able to grow as planned. This is likely to lead to lesser employment generation, job cuts as well as stagnation in salaries. This would result in decrement of the demand for textiles, garments, leather products and footwear.

Meanwhile, presently one of the dangers is of a slump in the employment market. There is already anecdotal evidence of this in the IT and financial sectors, and reports of quiet downsizing in many other fields as companies cut costs. Even many footwear manufacturers (exporters & domestic) reduced their manpower. However, this scale is significantly lesser than what happened in IT, hospitality, and other sectors. More than the downsizing itself, which may not involve large numbers, what this shows is a significant drop in new hiring, and that will change the face of the job market.

 

Global Crisis in Positive Terms

Although the recent global economy meltdown made the country and the entire world suffer a lot, but at the same time, it had a few positive impacts that really matters a lot in some or the other way.

Firstly, the recent economic crisis prepared ground for India to convert itself into world’s number one footwear exporter by replacing China. Many major foreign buyers/ footwear importers are planning to head towards India as to make it their production hub. Chinese products, which used to be cheaper by around 10 per cent compared to Indian products, are no cheaper due to the increase in labour costs in China. The costs of labour have risen by around 40 per cent since January 2008 in China. Implementation of the European Union (EU) anti-dumping duty and Chinese currency Yuan appreciating against the US dollar are other reasons. According to statistics for the first seven months of 2008, European imports of footwear from China fell by 1.7 per cent compared to the same period last year, whereas from India, it rose by 3.5 per cent (Ref: www.business-standard.com).

Moreover, in order to cut short the heavy expenses given to well establish industry people, the footwear companies are now highly keen to employ younger and fresh talents. If we talk about footwear designing, young designers are now becoming better option for the organisations, as the new comers are fresh in ideas. Furthermore, it is observed that the new comers are more interested in making their visibility in the industry, than merely earning money. Giving reasonable authority to young talents, especially in present time of crisis not only increase their loyalty towards the company, but also raise their ability to understand things, formulate into concepts and executing their ideas, which obviously result in a better way. On the companies’ side, they can have a better work done in spending lesser than what they spend to well establish industry people.

Further, the coming recession implies that economic growth and the GDP both in Europe and the US will drop into negative territory in the coming months. This will have a negative effect on retail sales to the end consumer. On the other hand, the economy in many Asian countries, mainly India & China, will continue to grow which will keep up demand for raw materials, chemical products and finished goods, etc.

 

Few Solutions to stand against the Global Economic Crisis

In order to hold the grounds in the present economic slump, below given are few ways, so as to avoid further crisis and make the investors trust over the market.

1. Bring-in a market stabilization fund using resources from pension funds, insurance companies, public sector banks, and other capital related bodies. This can be done by floating a particular back-up amount into the market, which can help in the stabilizing of the declining economy.

2. Easing Foreign Direct Investment (FDI) norms, and also bring them flexibility to facilitate & attract foreign investors.

3. Making reductions in interest rate over loans to the exporters of footwear and leather products, and also made applicable for existing term loans.

4. Finance and assist the authorities at the major production centres to host exhibitions and fairs, so as to attract foreign buyers, designers, and investors, which will result into better exposure of good resources in the nation.

5. Subsidize various machinery, research projects, electricity, infrastructure related issues, etc. so as to facilitate new comers and entrepreneurs to start their enterprise, which will also reduce unemployment.

6. Start new training organisations like Footwear Design & Development Institute, Noida, CLRI Chennai, etc., that can make the new entrants understand the crux of the industry, and also formulate their concepts to build better products. Education given in such institute should be strictly according to the demand and requirement of the industry, which‘ll help them to get established in the market in short span of time.

7. Banks should take initiative to provide long term loans so as to make suffered business come to track by avoiding further slumps.

8. Banking and financial sectors should have more efficient and better risk assessment and management system and a strong capital base to absorb the shocks of such losses.

9. New employment should be better made on term-contract (term agreement) basis or on commission basis. This will help both the employer and the employee. The employee would know well the fixed tenure of his job, and the employer can employ the manpower according to his/ her projections.

10. Companies that are smaller in terms of turnover and business should better go for mergers with big players of the industry, so as to maximize the profitability.

Concluding the article, I would like to say that although crisis made the entire nation and the world suffer a lot, it helped us to understand the extent to worst situation that can occur in the future, and ultimately making us to stay prepared for the same. The recent global economy meltdown taught us in the same way, and helped us to make sure we stabilize its impact if it takes place in the coming future.

Original Article by Rishi Mathur (rishi.neo@gmail.com)

 

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