Indian leather exports: Can the industry keep its best foot forward?

• Home to 20% of the world’s cattle and buffalo, and 11% of the world’s goat and sheep population, India is a favourable destination for the leather industry.
• The industry is among the top ten foreign exchange earners for the country and employs around 4 million people.
• The government is planning a reduction in export duty of raw leather and hide from 60% to 40%, which is facing opposition from the leather sector due to potential shortage.
• Measures like capacity building, setting up of a leather zone cluster, connecting to global value chains and impetus to innovation & brand building will help boost value added exports.

The leather industry in India is among the top ten foreign exchange earners for the country, with US (15.70%), Germany (11.58%), UK (10.5%), Italy (6.48%) & France (5.68%) being the major destinations for exports of leather articles in Apr-Mar 2018-19. India is home to 20% of the world’s cattle and buffalo, and 11% of the world’s goat and sheep population, according to Council for Leather Exports. The industry provides employment to around 4 million people, producing around 12.9% of the world’s leather production of hides and skins, and 9% of global footwear.

However, the advantage of being endowed with a bounty of raw materials might be negated if the government goes ahead with plans to cut the export duty on raw leather and hide from 60% to 40%. As confirmed by the Economic Survey 2016-17, there is a limited availability of cattle for slaughter in India. Incentivising raw material exports will be detrimental to the industry. As per a notification by the Council for Leather Exports, total exports of finished leather, leather products and footwear from India reached US$ 5.74 billion in 2017-18, but import of raw hides , skins and leathers was only at US$ 0.6 billion for the year.

“If the leather goods industry does not get raw materials, how will it survive and proliferate? Every country preserves its raw material resources, especially in sectors, which are competitive, organised and growing, such as leather in India. Yet, the finance ministry has proposed the export duty cut on hide, which defies logic,” believes Puran Dawar, Chairman, Council for Leather Exports (CLE) Northern Region. This could result in the shutting down of many factories, and have a negative impact on the entire chain of production from tanning to finished goods, as raw material supply gets constrained, thereby making finished leather goods from India uncompetitive.

Already, the industry’s share of exports has declined in the recent times due to the falling demand for leather in the apparel and footwear industries, especially in the European and Chinese markets, which are  major export destinations. Due to awareness of global warming and better scope of designs in synthetic products, many countries are switching to alternatives like synthetic footwear. Tough competition from Bangladesh, Vietnam & Malaysia has also influenced India’s leather exports in an unfavourable manner. India loses out to Bangladesh, for instance, due to the preferential market access for the latter in major exports destinations like the European Union.

Further, the sector’s growth in India is impeded by challenges related to logistics, labour regulations, tax and tariff policy. Unlike its competitors, India is handicapped in terms of the time & costs involved in getting goods transported from the factory to the market. Regulations on minimum overtime pay, de facto taxes for low-paid workers& the lack of flexibility in part-time work also bring down India’s competitive edge of having cheap labour.

In order to give an impetus to India’s leather industry, the government needs to draw inspiration from its international counterparts. For instance, Vietnam’s footwear industry, which ranks 4^th internationally, exports up to 90% of its output. Establishing relationships among local and international footwear manufacturers has been instrumental in raising footwear exports.

What helped Vietnam capture European markets is the presence of China, Taipei and the Republic of Korea as its new intermediaries. This enhanced its production capabilities and organized the supply of all required inputs. If we look at Malaysia, it has progressed due to the existence of an experienced and skilled workforce that is equipped with both technical and practical skills apart from efforts towards innovation and brand creation. Export promotion initiatives by the government, coupled with the push for greater innovation and brand creation among the local players, too, have complemented this process.

On the domestic front, the government should invest in developing a robust infrastructural network and impart vital skills to the workforce employed in the sector. Setting up a leather zone cluster will also help streamline the production process by providing a pool of common facilities and supply and support services. Loosening of purses by Indian banks would give an impetus to the credit starved startups in this sector.

Capacity building through establishing more leather technology institutions having knowledge about cutting-edge technologies will also be necessary to boost the sector. In this regard, the government’s special package of Rs. 2,600 crore for the leather industry is expected to provide employment for about 2.8 lakh people through training by FDDI and other approved training organisations over 2 years and could even help achieve annual export growth of 8-9%. However, the industry also asserts that continuation of the export duty of 60% on buffalo hides is essential to achieve the vision of US$ 10.6 billion of leather exports by 2024-25.