India’s leather industry generates about a sixth of the global output. But the shine is wearing off lately, with competition mounting and traditional fans overseas choosing less expensive options.

Locally, business isn’t great either because of taxes and operational curbs.

Adding to the problems of the industry, which generated $18 billion of sales in FY17, is the emergence of Vietnam and Indonesia as regionally competitive exporters. These Asian rivals have taken potential business away from India when the US raised tariffs on Chinese shipments. As a result, India’s leather exports have fallen steadily after scaling the $6.5-billion peak in FY15.

And the trend might not turn favourable immediately, with Washington now recalibrating tariffs on Chinese output, making sourcing unattractive from alternative destinations yet again. So, India needs policy support to enhance the competitiveness of a labour-intensive industry that counts Adidas, Clarks, Marks & Spencer, Debenhams UK, Massimo Dutti, Wolverine, and Bally Shoes among its list of customers.

“Globally, there has been uncertainty because of the US-China trade war and restrictions on Iran,” said Rafeeque Ahmed, chairman of the Chennai-based Farida Group, one of India’s largest shoe manufacturers and exporters. It supplies to multiple global brands.

But India failed to take advantage of higher US tariffs, when Washington imposed a 15% levy on these shipments.

“Although the number of queries received did rise last year during the trade tensions, we failed to capitalise on that opportunity. For instance, an American importer wanted one million pairs of footwear annually, an order beyond our existing capacity,” said an industry insider, requesting anonymity.

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The tariff edge is virtually nonexistent now, with the US deciding to halve the levies it had imposed on shipments from China.

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HELL FOR LEATHER

India’s leather exports have steadily declined over the past three years that otherwise witnessed major changes to decades-old global trade pacts and tariff structures. In the nine months to December, exports of leather and leather products slumped about 8% to $3.6 billion.

Last fiscal year, India exported goods worth $5.7 billion, only marginally higher than $5.65 billion in FY17, a year in which disruptions in the aftermath of the November 2016 currency-swap programme affected output drastically.

India produces around 3 billion sq. ft. of leather and accounts for about 13% of the world’s output.

N Mohan, director of footwear at Future Group that runs a JV with UK’s Clarks, said the global markets expanded at 2-3% in the last two years.

“India has a huge talent pool available at competitive costs, and it should try to take the share of other manufacturing countries – the way China’s share was taken by Vietnam and Indonesia,” said Mohan.

POLICY SUPPORT

The local industry has abundant raw material supplies, but policy underpinnings have proved rather inadequate in boosting its global competitiveness.

High rates of producer levy, or Goods and Services Tax (GST), delays in tax refunds and complexities in capacity addition have hampered expansion.

The broader economic slowdown and a protracted funds crunch at non-bank lenders have also hurt the industry, a substantial part of which is in the unorganised sector and has limited access to financing from high-street lenders.

A small exporter of finished leather garments from Delhi, for instance, said that GST has hurt his business.

“A tax slab of 28% on finished leather garments and 5% on leather goods is bleeding us dry,” said the exporter.

Another exporter said that logistics support was needed to ensure that the industry remained competitive beyond home. “Even if we manage to reduce costs, the high turnaround time and delays in shipping are not attractive to global buyers,” said the exporter.

Furthermore, freight costs in India are 15-20% higher than in China. Overall, India works out to be about 10% more expensive to buyers of its leather merchandise than does China.

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THE HOLY DIP…

Uttar Pradesh, India’s most populous state, accounts for nearly a third of the country’s leather exports. Last year, the state government ordered a shutdown of tanneries in the runup to the Kumbh. Most tanneries in Kanpur, the hub of leather production, were ordered to close for a threemonth period, from December 2018 to March 2019. The steps were taken to ensure that the Ganges would not be polluted during the Kumbh Mela at Prayagraj (Allahabad).

However, after the mega event, only about a tenth of these units were reportedly allowed to resume operations, while the rest are still shuttered. Kanpur is estimated to contribute more than Rs 12,000 crore to the leather industry.

Simultaneously, the green tribunal also slapped a Rs 280-crore fine on 22 tanneries in Kanpur for dumping chromium into the Ganges.

…AND HOPE FLOWS ETERNAL

But the Leather Council is hopeful. “With a huge and growing global market, we see very good opportunities for growth this year,” said Council for Leather Exports (CLE) Chairman Aqeel Ahmed Panaruna.

He expects a 2% growth in exports this year with demand reviving in Europe, a traditional market that had struggled lately.

To expand to newer markets, the council has planned a series of marketing events, setting an ambitious exports target of $10 billion by FY25.

Companies here believe business will be better, but they are also building strategies around alternative fabric options. Tata Intentional exports finished leather shoes and jackets, and 29% of its business comes from this vertical. V Muthukumaran, global business head, leather products, said that the company would work on a non-leather strategy for growth.

Tata International made 4.5 million pairs in 2019. This year, it aims to scale up to 5.3 million pairs and by 2021, to 7 million pairs.

“We will grow in the non-leather footwear space of which China is the biggest manufacturer. Of the plan to make seven million pairs of shoes by 2021, one million will come from non-leather footwear,” Muthukumaran said.





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