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Leather and Leather Goods

Background

The leather sector has a growing importance in the economy. The leather industry occupies a place of prominence in the Indian economy on account of its massive potential for employment, growth, and exports. Leather exports from India account for around 3% of the total global leather exports.

The major export markets for India are USA, Germany, UK and Spain. India has a lot of potential in these markets, as it has the unique advantage of economies of scale and capability of producing niche products. Leather footwear is the largest exported product among different categories of leather exports. Footwear is a critical segment, as this is expected to be the engine of growth for the Indian leather industry.

 

Leather goods manufacturers produce a wide variety of products, ranging from footwear, shoe uppers, garments, accessories, gloves, and saddlery, all of which are both for domestic distribution and export markets.

Size

  • The industry size is approximately Rs. 250 billion (US $4 billion) accounting for (0.7% of GDP) and employs around 2.5 million (30% women) people.
  • It is estimated that about 10 per cent of the world's supply of leather is processed in India.
  • The industry’s export turnover is US $ 2694.59 million (FY2005-06), which is about 2.6% of India’s total exports. During the first half of FY2007 (April-September 2006), exports of all categories of leather and leather products increased 13% (year on year) to Rs. 68.45 billion. In US$ terms, exports increased 7.4% (yoy) to US$1.49 billion. Export growth was primarily driven by increased footwear and components exports. By comparison, exports of finished leather grew at a moderate rate
  • About 8% of units are classified as large (more than 1 million square feet per month) and 63% as medium (0.5-1 million square feet per month).
  • The highly fragmented nature of the industry has resulted in strong competition. Around 70-75% of the industry capacity is accounted by the SSI and the tiny industry segment.

Structural Characterstics

  • Most plants are clustered within the states of Tamil Nadu, West Bengal, Uttar Pradesh, and Punjab. Tamil Nadu leads in the Southern region with a major focus on finished leather and footwear components. The Eastern region including Kolkata in West Bengal leads with a two-thirds share in the country’s leather-goods exports (of items such as wallets and handbags), and the Northern region (dominated by Agra and Kanpur) leads in the export of leather garments, saddlery and harnesses and footwear.
  • Of the 185 million hides and skins processed annually by the industry, 85% is sourced domestically. Cow hides are collected mainly from fallen carcasses and illegal slaughter houses while Buffalo hides are collected from organised and mechanised slaughterhouses in northern and western India. Raw hides and skins are processed in tanneries to make wet blues or WB (which is semi-processed leather), which are further tanned to make finished leather.
  • Most of the medium and large tanners perform customised work for the larger manufacturers and exporters of leather goods on a fixed margin basis or on a pre-negotiated price for the finished leather.
  • A key factor in the success of the Indian industry was central role of Central Leather Research Institute (CLRI) and Council of Leather Exports (CLE) in standard setting and monitoring. Both these agencies played a key role in setting new standards, testing, and certifying and disseminating new information about the German standards.

Policy

  • Duty free import of hides and skins are permitted from anywhere in the world for providing cheap and ready availability of the raw materials for this industry.
  • Launch of Technology Mission was initiated in 1980s for restructuring to make it internationally competitive and to protect the interests of small scale and tiny sectors.
  • National Leather program was initiated in 1992 with UNDP assistance of US$17 million. and Govt. funding of US$11 million for integrated development of the leather industry through selected institutions and agencies.
  • Indian Leather Development program, 2000 was initiated for modernization of Tanneries
  • The ILDP comprises of two programmes, viz., Integrated Development of Leather Sector (IDLS) and Infrastructure Strengthening of Leather Sector (ISLS)
  • The IDLS aims at technology upgradation and modernisation in all the segments of the leather industry, namely, tanneries, footwear components, saddlery, leather goods and garments.
  • The aim of the ISLS Scheme is to provide infrastructure facilities and capacity building in the leather sector. This comprises of 11 sub-programmes, viz., Leather Complex (Tannery); Footwear Complex; Footwear Component Park; INTECHMART; Saddlery Development; Human Resource Development; Non-Leather Footwear; Support to Rural Artisans; Leather Goods Park; Global Benchmarking and Establishment of National Institute of Footwear Design and Technology.
  • Under the Scheme ‘Support to Rural Artisans’ marketing and technology support to Indian traditional and ethnic footwear products like Mojari, Jooti and Kolhapuri is being provided.
  • INTECHMART aims at strengthening the market accessibility to Indian leather products through organisation of international leather fairs in India and leather delegations to potential countries.
  • The aim of the scheme HRD Mission is to develop technology culture in leather sector whereas the scheme Global Benchmarking provides international standards like ISO 14000, ISO 18000, etc., to a selected number of leather units. 
  • On the negative side, Supreme Court orders in September 1995 and April 1996 forced closure of 459 leather tanneries in TN.
  • The Union Budget for 2006-07 has resulted in reduction of Central excise from 16% to 8% for footwear with retail sale price between Rs. 250-350. Present excise abatement of 40% on MRP of footwear has been brought down to 37%, consequent to reduction in excise duty from 16% to 8%.

Outlook

  • India’s consumption of leather products is expected to grow at around 3-4% per annum in the near future. Consumption is expected to be driven by rising disposable incomes, and the increased preference for leather footwear
  • Indian 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 FY2006-10. It is likely that India’s leather and leather products exports could increase to around US$4.5 billion by FY2010
  • The world leather industry is in the process of shifting its manufacturing base from developed to developing countries which presents a huge window of opportunity for increased flow of foreign direct investment into India. Against such scenario, factors such as abundance of leather, increasing awareness for quality, production know-how and designing capabilities, work in India's favour.
  • Increasing trend of large corporate houses in the leather sector is likely to provide a fillip to the investment flow to this sector.
  • Diversification of export markets is another important strategy for the Indian leather industry. A lot of emphasis is being given to latest fashion trends in the international markets and hence the industry should give equal importance to the design and fashion trends.
  • Some of the challenges identified for the leather sector include strategy to achieve US $ 7 billion export turnover by the end of XI Five Year Plan;  increase the indigenous supply of raw hides & skins to reduce the imports; need to create infrastructure to achieve the projected export target; create mechanism for work force availability; increase India’s share in export markets and to find out new markets; position Indian leather products in the branded segment and fashion segment; and to develop a centre of excellence in designing and pattern making.
  • Other major challenges for the Indian leather industry are effluent management, quality specifications, non-tariff barriers, and cost of compliance to various standards. During 2001, People for Ethical Treatment of Animals (PETA) accused the Indian Leather industry for unlawful slaughter and transport of animals. Following this, Nike and Reebok had banned leather imports from India.

References:
http://finmin.nic.in/the_ministry/dept_eco_affairs/budget/annual_report
ICRA reports
http://dipp.nic.in/anrepo_e/annual_report_eng_2006-07.pdf
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