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Rising Disposable Incomes Fuel Industry Growth: Study over Indian Footwear & Leather Industry.
Republic of India Area: 3,287,000 sq km (around the size of the EU) Capital: New Delhi Population: 1.1 billion (approx.) Population growth rate: 1.4% per annum (average) System of government: Parliamentary democracy composed of 228 states, 7 union territories Head of state: Mrs Pratibha Devisingh Patil, President of India GDP: $910 billion Currency: Indian rupee India is the seventh largest country in the world with one of the fastest growing economies. The current GDP growth rate is 9%.
Brief Introduction to Indian Leather Sector Skilled Labour: Premier Institutes like FDDI, Noida, CLRI Chennai, etc., offering Bachelor's Degrees and
Diploma courses. Low wage cost: around 2.5 million people employed in the value chain.
According to CLE, every US$800 invested in the leather sector creates
a job. Research and development: about 180 patents filed in the last five
years. India is the world's fastest growing democratic economy with a rapidly
expanding domestic market. The nation's consumption of leather
products is expected to grow at around 3-4% per annum in the near
future, driven by rising disposable incomes and the increased
preference for leather footwear. The government's hope that the
country's total exports could reach US$500 billion within five years,
to be driven by the leather sector (alongside textiles, engineering, Interest in the International Leather Fair held in Chennai at the end
of January was overwhelming with aisles and stands busy throughout the
three-day event, and a reported 100 potential exhibitors turned away
through lack of space. According to the Council of Leather Exports,
the fair has doubled in size since 2002. India is one of the very few places in the world where business is
improving and which has been able to take some production away from
China. A number of very well known brands are sourcing in India,
including Next, Versace and Hugo Boss. Leather exports from India account for around 3% of total global
leather exports. The sector's major export markets are USA, Germany,
UK and Spain. Overall, the industry generates approximately Rs250 billion (US$4
billion) accounting for 0.7% of GDP. It is estimated that 10% of the
world's supply of leather is processed in India. Export turnover in
the 2005-06 financial year was US$2,694,000,000, which is about 2.6% Between April-September 2006, exports of all categories of leather and
leather products increased in US dollar terms by 7.4%. This growth was
primarily driven by increased footwear and components exports, whilst
exports of finished leather experienced more modest growth. Footwear
is expected to be the engine of further growth for the Indian leather
industry in the coming years. Current total production is 2 billion sq ft of leather per year. Value
added finished products constitute around 80% of the total exports,
compared with just 7% in 1956-57. The highly fragmented nature of the industry has resulted in strong
competition. Most tanneries are clustered within the states of Tamil
Nadu, West Bengal, Uttar Pradesh and Punjab. Raw Materials Of the 185 million hides and skins processed annually, 85% is sourced Cow hides are collected mainly from fallen carcases and illegal
slaughterhouses while buffalo hides are collected from organised and
mechanised slaughterhouses in northern and western India. Most of the medium and large tanners perform customised work for the
larger manufacturers and exporters of leathergoods on a fixed margin
basis or pre-negotiated price for the finished leather. The need to
import more raw hides, skins and wet-blue is growing continuously. Government policy The Council for Leather Exports (CLE) has set an ambitious target of
doubling Indian leather exports to about US$5 billion by 2010. This
would imply an annual growth of 16% between 2006-10. In order to
achieve this, the sector's 11th five-year plan (2007-2012) focuses on Furthermore, duty free import of hides and skins is permitted from
anywhere in the world to provide cheap and readily available raw
materials. As the footwear sector is seen as crucial for growth,
central excise has been reduced from 16% to 8% for items with a retail
sales price of between Rs250-350. Present excise abatement of 40% on
MRP of footwear has been brought down to 37%, consequent to the
reduction of excise duty from 16% to 8%. To further promote technology transfer and the development of the
sector, 100% FDI and JVs are permitted through the automatic route.
Funding is available to enable tanners to modernise manufacturing
facilities. Machinery also benefits from duty-free/concessional import On the smaller scale, under the ‘Support to Rural Artisans' scheme,
marketing and technological support for traditional and ethnic Indian
footwear products such as Mojari, Jooti and Kolhapuri is being
provided.
Challenges Challenges for the country's leather sector identified by the plan include: > increasing indigenous supply of raw hides and skins to reduce the need for imports the need to create infrastructure > create mechanism for workforce availability To this end, CLE have lobbied the government for support in terms of
improved infrastructure and the council have also appointed
consultants in Spain, France and Brazil to attract joint ventures. Currency problems The appreciation of the rupee is a further challenge to the sector.
Spic Pharma is a large biotech group based in Chennai which has been
operating for the past twelve years. The group has an annual turnover
of US$1 billion. However, according to Abhay Kumar, manager, 33% of At the IILF, Mukhtarul Amin, CLE chairman, stated that growth in the
leather sector over the last year had not been as great as expected
for the same reason. Last year there was a 9% growth in exports in US$
terms, but this translates to just 3% in rupee terms. However, it is Although rising labour costs, particularly in Dongguan and Shenzen,
have dented Chinese production cost advantages, Rafeeque Ahmed
president, All India Skin and Hide Tanners and Merchants Association,
predicts that competition from Vietnam will increase as Chinese and The importance of the Footwear Sector Growth in the footwear sector has averaged 26% over the past three
years. 909 million pairs of leather footwear and 100 million pairs of
leather shoe upper are produced each year. It is a major employer in
the Indian economy. 79% of Indian footwear exports go to the European Union and 10% to the
USA. In 2006-07 footwear exports were valued at US$1.2 billion.
However, 95% of Indian footwear production is for the domestic market,
underlining the sector's importance to the economy. Rafeeque Ahmed told the LERIG meeting in January that domestic markets
had become the future focus of the industry. Indian companies make
about two billion pairs of shoes annually for the domestic market
while exports amount to less than 100 million pairs. Despite the small proportion of exports a lot of effort has been made
to develop the export market. With more international players looking
at investments in India, the industry here is seen as a market for
inputs and raw materials because of its production strengths. There are also plans for a number of leather parks to provide improved
infrastructure and economies of scale to the industry. A 153 acre
footwear park is to be constructed adjacent to the footwear component
park in Irungattukottai, 25 km from Chennai. The footwear park will be
established as a special economic zone (SEZ) and will incorporate
facilities such as a design studio, testing laboratory and training
centre. Ten footwear component manufacturers are setting up production units
at present and according to the State Industries Promotion Corporation
of Tamil Nadu, the park will provide an ideal opportunity for overseas
investors to set up units either through FDIs or joint ventures with
Indian companies. Under the sector's five year plan, the establishment of ten small
integrated leather parks ranging in size from 25-100 acres is being
considered by the government with an announcement expected shortly. The Andhra Pradesh Government is planning to develop a 413 acre
International Leather Complex at Krishnapatnam in the Nellore district
of Hyderabad. The project report submitted by CLRI estimates the cost
at around Rs180 crore, of which central government will provide a The footwear manufacturers of Agra in northern India will soon have a
new leather park to help them meet their supply needs and to enable
them to present their products to buyers more effectively. The state
of Uttar Pradesh will invest $50 million in the project according to The city of Agra has long had a reputation for skilled leather workers
and footwear producers, but most businesses have operated on a small
scale. It is hoped that this development could help the local industry
move to the next level. Problems faced by the Safety Footwear Industry India is the major supplier of leather for safety footwear and uppers
to European countries and production is mostly concentrated in Kanpur/
Unnao. As manufacturing in Europe has fallen considerably, the
consumption of leather and uppers by European safety footwear In contrast, China's exports of safety shoes has increased
significantly. Most Chinese safety footwear manufacturers import
leather from India, produce footwear in China and then export to
European markets. Indian producers face problems with the exchange rate and a lack of
infrastructure. The fact that duty drawback is calculated on the basis
of casual footwear where the inputs are less costly and mostly
available on the domestic market also creates problems as safety
The Chemicals Industry In addition to government investment in the sector, the European
chemical industry is also investing heavily in India. As well as BASF,
TFL and Stahl, (see articles in this edition) Kemia Tau have
inaugurated their first technical service laboratory in South Asia,
located in Chennai. The lab, which will cover the full range of Kemia
Tau products from wet-end to finishing, was inaugurated in January by
Dr Alberto di Giovanni, director, Kemia Tau Italy. Environment Attention is being paid to the environmental consequences of the
industry and progress is being made. The zero liquid discharge
requirement (see Leather International June 2007) is being introduced
in Tamil Nadu and safe landfill has already been completed in ten
places according to Rafeeque Ahmed. He added that this process will
make the water source safe for the future as it leads to a reduction
in the quantity of dyes and fatliquors consumed due to the consistent Leather regions Tamil Nadu in the southern region is India's foremost leather
producing area and has a major focus on finished leather and footwear
components. Tamil Nadu comprises nine leather clusters at Chennai,
Ranipet, Ambur, Vellore, Pernambut, Vaniyambadi, Dindugul,
Tiruchirapalli and Erode. Together they produce 855 million sq ft of
leather, 59 million pairs of footwear, 7 million garments and 30
million items in the leathergoods category. The eastern region including Kolkata in West Bengal has a two-thirds
share of the country's leathergoods exports. Its share in India's
tanning capacity and production stands at around 22%. Cheap raw
material, abundant water supply, skilled labour and low operating
costs are the important factors that make the state an attractive
destination for leather based industries. West Bengal has over 500
tanneries and a large number of leathergoods manufacturing units, most
of which are small enterprises. The world's largest integrated leather complex is being set up at the
outskirts of Kolkata on a Build-Operate-Transfer (BOT) basis. The US
$78 million Bantala project is a joint venture between M L Dalmiya & Company and the West Bengal Government. The complex covers an area of
440 hectares. It will have a process capacity of 1,000 tonnes of
rawhide per day. When fully functional, the park is expected to generate approximately
US$111 million worth of exports and employment for 10,000 people. It
also features a design and training studio. Of the 600 unit capacity,
180 tanneries are currently operational with a daily production of 500 According to West Bengal Chief Minister, Buddhadeb Bhattachjee, the
government, encouraged by the uptake at Bantala, has decided to build
a tanning complex at Panjipara in West Dinajpur district, primarily to
process raw hides. The complex, to be developed under public private
partnership (PPP) involves investment of about Rs30 crore in two
phases. Elsewhere in the region, the Tata Group has agreed to help update the
teaching processes of the state's leather training institute. This is
considered a major breakthrough towards creating adequate highly
skilled manpower for the industry. The northern region (dominated by Agra and Kanpur) leads in the export
of leather garments, saddlery and harness and footwear. According to
Dr K Elangovan, executive director of CLE, growth is particularly
strong in the Kanpur tanning cluster. The region is home to many of The history of manufacturing of leather and leather products in Kanpur
dates back 150 years to when the British set up factories for
production of shoes and saddlery items with which to provide the
military. Tanneries were originally set up on the banks of the Ganga
in the Jajmau area, 10 miles from Kanpur. Tanners in this area began to export from the 1960s. The area is
particularly focused on saddlery and safety footwear. Its 342
tanneries and manufacturers registered with CLE export goods worth
around US$663 million per year with particular emphasis on tanning
buffalo. The government and tanneries in Kanpur have taken necessary
initiatives in dealing with environmental pollution. Under the Indo-
Dutch Project, a CETP has been set up which takes care of 175
tanneries located there. The area's 300 acre Banthar technology park is partly functioning,
housing nearly 158 leather units and 44 tanneries with the remainder
for leathergoods manufacturers. According to CLE 24 units are
currently producing finished leather, footwear uppers, safety and
fashion footwear on the site. To the east of the subcontinent, in Tamil Nadu, the Tiruchi Tanners' Association is lobbying for the removal of export duties on East India leather, a type of semi-processed leather. According to V S M Varis Mohideen, secretary, EI tanning capacity accounts for less than 5% of the total capacity of the leather industry in India. Although the Ministry permitted the resumption of exports of EI leather in January 2000, the imposition of 15% export duty has reportedly crippled the industry. This sector also suffered from the decline of the leather garment
industry between 1990-2000. Exporters of finished leather and leather
product manufacturers opted to import raw skin and other crust types
after the government permitted duty free import of raw skins and
leathers. As a result, the capacity of EI tanneries is under-utilised, stock has
accumulated and tanners face difficulties in upgrading effluent
treatment plants by adopting membrane bio reactors and reverse osmosis
technology despite the 50% subsidy offered by the government. According to Mohideen, nearly 50% of tanning capacity in Tiruchi and
Dindigul has been lost as tanneries closed on account of non-
compliance with pollution control measures and the export duty. Meanwhile, in the Punjab, 70 tanneries have relocated to the Jalhandar
leather complex according to CLE. The CETP is currently being upgraded
and the cluster features modern testing and training facilities from
CLRI. Industrialists of the Jalandhar Leather Complex are demanding SEZ
status (special economic zone), with deemed exporter status for
indirect exports and the setting up of a footwear design and
development centre. Minister of State for Industry, Ashwani Kumar,
said he would take up the issue and promised the set up of a
facilitation centre for the city to attract both domestic and Kumar revealed that yearly turnover of the Punjab leather industry was
Rs1,000 crore, of which only Rs400 crore was for export. Tata The Tata group, which is comprised of 32 companies producing
everything from teabags to hotels and, arguably, India's largest
tanners have acquired automotive brands Land Rover and Jaguar. Tata
Motors spent US$2.65million on the acquisition. Tata had been a
preferred supplier of Ford since December 2007. Tata Motors plan to increase production of Jaguars from 54,000 units
to 100,000 but have pledged to conserve the identity of the two
brands. Arzignano tannery Pasubio are the main suppliers of leather to
Land Rover and Jaguar. Pasubio have a four-year supply contract with
Jaguar and are reportedly not unduly concerned that Tata have their
own tanning division as this focuses more on footwear and garment
leathers rather than automotive. ‘The leather industry in the Punjab is not working to its potential
and it is vital to attain global recognition and credibility by
improving technological skills', said Kumar, adding that Rs10 crore
has been earmarked for such training. The representatives also demanded organised animal farming to ensure a
continuous supply of raw materials, amendments to labour laws to
enable the leather industry to hire contractual labour and a waiver of
import duty on capital goods. Aero to take Woodland into malls The Aero Group of Companies, makers of ‘Woodland' brand of premium footwear, plan to invest nearly Rs100 crore in 2008-09 to set up new plants and double production capacity to 20,000 shoes per day at their facilities at Dehradun (Uttarakhand) and Baddi (Himachal Pradesh). They are importing the latest technology to set up fully automated
plants. The company are adding 100 outlets to their existing 180 and
plan to set-up ‘shop-in-shop' at retail malls across India. In
addition the company are considering strategic tie-ups and outsourcing
work to some partners in the southern states. Woodland currently have a 20% share of the Rs2,000-crore branded
footwear market in India.
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