EXECUTIVE SUMMARY

Leather and Leather Products sector is one of the important sectors among the various constituents of
the manufacturing sector in India, mainly due to its contribution towards employment. It is one of the
unique sectors which have the advantage of the both value addition and export potential. It also
contributes significantly to total manufacturing output and exports from the country.

Leather industry has massive potential for employment, output growth and export. The sector
is one of the top eight foreign exchange earners worth over Rs. 10000 crores per annum and
accounts for 3% of the global leather-related trade of Rs. 387200 crores. An estimated 15% of
total purchase of leading global brands in footwear, garments, leather goods & accessories in
Europe, and 10 percent of global supply is outsourced from India. Leather industry has
undergone dramatic transformation in the recent years from a mere exporter of raw
materials in the sixties to that of value added finished products in the nineties.

The Indian leather industry comprises of both organized and unorganized and organized
sectors. The organised manufacturing sector broadly consists of tanning and dressing of
leather manufacture of luggage, handbags saddlery, harness and footwear. Currently
unorganized sector plays a dominant role in the entire production. The small scale, cottage
and artisan sectors account for over 75 per cent of the total production and majority of them
belong to unorganized sector. Though footwear is produced by both large and small scale
sector, the small scale sector has almost 90 per cent share in the total production of footwear
in India.

India’s leather and leather products exports have been growing at 6.80% per annum during 1991-92
to 2013-14. Major export destinations are Germany, USA, UK, Italy and Hong Kong. India’s exports of
finished leather have been growing at the rate of 6.42% during 1993-94 to 2013-14. Hong Kong is one
of the major export destinations of finished leather products. Hong Kong cornered the largest share
(42%) of India’s finished leather export in 2013-14.

Leather Footwear: India’s exports of leather footwear have been growing at the annual rate of 3.50%
during 1991-92 to 2013-14. The leading importer of Indian leather footwear is UK followed by
Germany, USA, Italy, etc.

Leather Goods: India’s exports of leather goods have been decreasing at the rate of 2% per annum
during 1991-92 to 2013-14 period. Germany’s position as the major destination of India’s leather
goods exports during the early 90’s has changed

drastically. UK, Spain, Netherlands, Australia, UAE and Belgium have all increased their
imports from India.
Leather Garments: Leather garments exports from India have been decreasing at the annual
rate of 2.46% during 2013-14 to 2013-14. Germany is the leading importer of leather
garments during 2013-14. The share of Belgium and Canada has increased over the years.
Leather garments exports to Germany, Italy, USA, France, UK and Netherlands declined over
the years.

Leather Footwear Components: India’s exports of leather footwear components have been
decreasing at an annual rate of 2.27% during 2013-14 to 2013-14. India’s exports of leather
footwear components have increased to Spain, Portugal, France, Switzerland, Slovakia,
Austria and Hungar, Italy, Germany and France are the major importers of Indian Leather
Footwear components.

Saddlery and Harnesses: India’s exports of saddlery and harnesses have been increasing at
the annual rate of 8.96% in the period of 2013-14 to 2013-14. However, the export shares of
USA, Germany, France, Netherlands and Australia have been declining.

Globalisation and Prospects for Indian Leather Sector

Currently India has a share of 2.3 per cent (i.e. US $ 2 billion) of global trade of leather and
leather products. India has a large and growing middle class of about 250 million people with
good purchasing power. Global players in the leather business, big or small are today focusing
increasingly on India's domestic market.

The livestock is the raw material for the leather industry. Cattle, buffaloes, goat and sheep are
the four live stock species which provide the basic raw materials for the leather industry. India
ranks first among major livestock holding countries in the world. In fact, India has the
capacity to fulfill 10% of the global leather requirement. The annual availability of 218
million good quality pieces of hides and skins is the main strength of the industry. Along with
rich endowment of raw materials, the industry has access to abundant supply of cheap labour.
Over the years through government support the industry has been able to develop its R & D
facilities considerably. Though there is much to be done in order to meet the challenges of
globalization, the industry has established a sound base for the same.
Growth Constraints

There continues to be acute shortage of good quality finished leather. As a result the industry
is dependent on import from China and other countries. Lack of adequate product quality
adversely affected exports. On the technology front, most tanneries use outdated technology
which inhibits them from producing good quality leather in spite of access to quality raw
materials such as hides and skins.

Leather industry across the globe has been subjected to stringent pollution control norms due
to growing environmental concerns. Since the industry is dominated by small and tiny
producers, the availability of finance and the cost of capital turn out to be a major constraint.

The Indian footwear component industry which is the pride of India in terms of its
contribution to total leather exports is facing stiff competition from China in a number of shoe
components - cellulose insole fabrics, coated, impregnated fabrics and interlinings, where the
price of the imported materials is between 40% and 50% lower than the indigenously
produced materials. Along with the lack of competitiveness, the size of the Indian footwear
segment appears to be too small in comparison to that of China. This is evident from the fact
that India's share of the global footwear imports is 1.5% while that of China is 14%.
The main reason for the low scale of operation in the leather industry and in the footwear
segment could be due to the lack of investments in the sector. Over the last 20 years China has
attracted more than 10 times of investment that India has attracted. This may be of the fact
that for a long time the sector almost in its entirety was in the SSI list. Only after 2001 the
leather sector was de-reserved.

Field Survey Findings

In order to find out the issues and concerns at the firm level a field survey was carried out
with structured questionnaires. Firm level details on turnover, employment, domestic and
foreign trade, product description, cost related information, factors affecting productivity,
factors responsible for competitiveness etc. were compiled.

Majority of the responding units (58%) belong to small scale categories. Nearly 63%
responding manufacturing units opined that the quality accreditations boosted their business.

As regards to average profitability after 2000, 76% units reported that there is an increase of
profitability. A large majority of manufacturing units reported an increase in export in the
recent years. Most of them reported that foreign direct investment is less than 10 percent.
Average employment across the manufacturing units have been found increasing from 257
employees per unit during 2010-11 to 315 employees per unit during 2013-14.
Cost competitiveness of the manufacturing units increased during the last five years. More than
86% units reported that price competitiveness increased during the last five years. However, the
product price was reported increasing due to the increase in the import of raw materials during
the last five years.

A large majority of manufacturing units (65%) reported an increase in labour productivity during
the last five years.
Though the availability of quality human resources increased during the last five years, it is
reported to be still short of industry need.
As far as Government interface with business/private sector is concerned, about 69%
manufacturers are not satisfied.
Major factors that adversely affected the competitiveness of leather manufacturing in India
have been identified as non conducive government policies and taxes, rupee appreciation
against dollar, increase in raw material price, poor quality of products, increasing labour cost,
infrastructure bottlenecks, intense competition from China, very high interest rate, lack of
quality work force, exports clearance problems, higher import and excise duty, high power &
water charges, old designs, changes in the foreign buyers taste preferences, preference for
branded items, higher income tax rate on export profits, pollution norms etc.

Recommendations:

It is quite apparent that the globalization process though threatens Indian leather sector,
provides ample opportunity in the form of potential growth.

Efforts should be made by government and other agencies to improve product quality. through
improved design, development and prototyping.
X
Emphasis should be put on building brand loyalties for Indian leather products.

Efforts should be made by the council of leather export to concentrate on niche markets like
Europe. Also, the industry should focus on women's fashion footwear, where India faces
competition mainly from Eastern European countries.

Leather producing units should be given incentives to adopt adequate pollution control
measures. Government can evolve support schemes for leather manufacturing units that
implements pollution control measures.

Emphasis should be placed on the expansion and modernization of all segments of the leather
industry including tanneries. In fact, there is need for a paradigm shift in the adoption of
technology in the leather industry in India.

Not only the rationalization of the duty structure but also all round efforts to be made to
encourage existing producers of leather products for technological up gradation.

Modernization will definitely require a heavy dose of investment for which availability of
capital will be a major constraint. Since, most of the players in the leather sector are small
and tiny industries, the government should take proactive steps for easing the capital
constraint.

Encouraging FDI in the leather sector would ease capital constraint and also improve the
quality of Indian leather products. However, in order to increase FDI in the Indian leather
sector it is essential to encourage good governance and global bench mark of best
practices and provide good infrastructure for the sector.

Development of human resource is an important requirement of Indian leather industry. In

order to increase the availability of a large pool of skilled workers and artisans, efforts
should be made to enhance training and capacity building infrastructure in the country.

In order to rejuvenate and drive the Indian leather industry on its potential growth trajectory
there has to be an appropriate detailed policy package and a road map for the fast track
growth and development of the sector.
There should be timely and a purposeful review of the policies implemented by the
government for the leather sector from time to time.

There is a need for developing a coherent statistical data base on the leather sector with
regular updating.
Reduction in excise duty for Leather and Footwear Industry should be considered. The Central
excise duty has been reduced by GoI as part of the economic stimulus packages Announced on
December 7, 2008. The central excise duty on footwear of MRP between Rs. 250/pair to MRP
Rs. 750/pair has been reduced from 8% to 4% and for footwear of MRP exceeding Rs.
750/pair has been reduced from 14% to 10% as part of the economic stimulus package. In the
stimulus package announced on February 24, 2009, there has been reduction in the general
rate of central excise duty from 10 per cent to 8 per cent. The excise duty on footwear of MRP
exceeding Rs. 750/pair has now been further reduced from 10% to 8% in the third stimulus
package after being reduced from 14% to 10% in the first fiscal stimulus package.
CHAPTER I

INTRODUCTION

1.1 Background

The leather and leather products sector has been identified as one of the unique sectors
which has the advantage of both value addition and export potential. Apart from the
contribution to employment, this sector contributes significantly to total manufacturing
output and exports from the country.

The methodology adopted for the present study is based on two pronged approaches. First
approach is based on a review and analysis of published data and literature related to the
sector. Second approach is to conduct an in-depth field survey of the manufacturing units
through structured questionnaires and discussions. The survey has been carried out among
middle and top level executives of leather and leather manufacturing units spread across
various leather clusters in India. Apart from the unit level investigations, the views of
leading experts such as management specialists, technologists, economists, policy makers
etc., have also been sought on a host of issues related to the sector.
In the recent years industrial sector has exhibited impressive signs of recovery from a low
overall industrial growth rate (based on index of industrial production) of 2.7 per cent in
the year 2009-10 to 11.3 per cent during 2012-13. After peaking in the year 2012-13,
growth rate of the sector has dipped to 8% in 2013-14 as a result of number of adverse
factors such as rupee appreciation against dollar, increase in inflation rates, rising fuel
prices, infrastructure constraints, restrictive labour laws, of late global economic recession
etc.
In an era of technology driven growth, very few manufacturing activities contribute
significantly to employment. The manufacturing of leather and leather product is one such
sector which contributes considerably to employment generation in the manufacturing
sector though it has a meager (1.1 per cent) weight in the Index of Industrial Production
(IIP). Moreover, this sector is among a few sectors that can benefit from globalization due to
comparative cost advantages that India enjoys.

Indian leather industry, provides employment to 2.5 million persons and has access to
cheap raw material, skilled labour, and a vibrant domestic market. Probably these are some
of the important ingredients on which Indian leather industry rely on to face the challenges
in the coming years.

Global players have shown considerable interest in Indian leather sector and leading
leather brands from the US and Europe are sourcing leather and leather products from
India. Thus, Indian leather industry has a significant potential to grow and to provide large-
scale employment opportunities.
1.2 Chapter Scheme

This study report has been presented in six chapters. Chapter II presents an overview of
leather industry in India. Chapter III discuss productivity perfofrmance of Indian leather &
leather goods sector. Chapter IV analyses the trends in exports of leather products from
India. Chapter IV analyses the prospects of Indian leather industry in the wake of
globalization and provides a SWOT analysis. Chapter V provides the feedback received from
the field survey of leather manufacturing units and other stakeholders spread across India.
Chapter VI presents recommendations emerging from the study.

1.3 Limitations & Constraints

Keeping in view of initially set scope of work that was mainly to focus the study on
secondary data sources, which has its own inherent limitations as a result of reliability in
working out the projections, in order to substantiate the secondary data field evidences
have been also included through a primary survey later on.

Due to the limited resources available in terms of finance, the field survey was undertaken
with limited scope and coverage. However, efforts have been made to minimize such
constraints by analyzing various data sources in order to arrive at broad recommendations
for the development of the sector. The recommendations have been formulated considering
its implementability.

1.2 Chapter Scheme

This study report has been presented in six chapters. Chapter II presents an overview of leather industry in India.
Chapter III discuss productivity perfofrmance of Indian leather & leather goods sector. Chapter IV analyses the
trends in exports of leather products from India. Chapter IV analyses the prospects of Indian leather industry in the
wake of globalization and provides a SWOT analysis. Chapter V provides the feedback received from the field survey
of leather manufacturing units and other stakeholders spread across India. Chapter VI presents recommendations
emerging from the study.

1.3 Limitations & Constraints

Keeping in view of initially set scope of work that was mainly to focus the study on secondary data sources, which
has its own inherent limitations as a result of reliability in working out the projections, in order to substantiate the
secondary data field evidences have been also included through a primary survey later on.

Due to the limited resources available in terms of finance, the field survey was undertaken with limited scope and
coverage. However, efforts have been made to minimize such constraints by analyzing various data sources in order
to arrive at broad recommendations for the development of the sector. The recommendations have been
formulated considering its implementability.
CHAPTER II

LEATHER AND LEATHER PRODUCTS SECTOR: AN OVERVIEW

2.1 Introduction

Leather industry occupies a prominent place in the Indian economy because of its massive potential for
employment, output growth and export. Currently, the industry employs about 2.5 million persons of which 30%
are women. Nearly, 50 per cent of the total domestic production is exported. The sector is one of the top eight
foreign exchange earners of the country and accounts for 2.5% of the global leather-related trade worth Rs. 387200
crores. In India, leather exports are growing at an annual rate of 5-6 per cent per annum (CII, 2006). The Indian
leather industry includes both formal as well as informal sectors from small artisans to global players and produces
a wide range of products from raw hides to fashionable shoes. Specialized institutions like Council for Leather
Exports (CLE) and Central Leather Research Institute (CLRI) have been set up to promote the overall performance of
the leather sector.

The leather industry has undergone dramatic transformation from a mere exporter of raw materials in the sixties to
exporter of value added finished products in the nineties. The share of value added finished items in the total
exports from the leather sector have reached 80 percent now against 20 percent in the 1970s. The Policy initiatives
taken by the Government since 1973 for the development of the sector through optimal utilization of available raw
materials have been instrumental in the phenomenal transformation of the leather industry.

One important policy initiative taken by the government includes liberalization of the leather sector. Government
has de-reserved the manufacture of various types of leather viz. semi-finished leather, harness leather, leather
shoes etc., which are produced by small-scale sector. Moreover, government is setting up exclusive shoe
component parks for meeting the demands of the global sourcing majors.

It is expected that Indian foot wear industry will grow leaps and bounds at a rate of 10% to 15% in the future years.
To tap the huge domestic footwear market, branded players are establishing footwear supermarkets in India.

2.2 Structure of Leather Industry

Important aspects of the industrial structure can be categorized into product segments and structural components.
In the following sections we analyze these two aspects separately.

2.2.1 The Product Segments

The Indian leather industry comprising of both organized and unorganized sector, produces wide range of leather
products. The organized sector of leather products broadly consists of tanning and dressing of leather (NIC Code-
1911), manufacturing luggage, handbags saddlery, harness (NIC Code-1912) and footwear (NIC Code-1920).
However, the unorganized sector along with the above broad category of leather products produces a number of
other leather items. In order to have a clear picture of the industry we focus on four major items produced by the
Indian leather industry. These four items constitute the various product segments of the Indian leather industry.

Leather footwear
Leather footwear components
Leather garments
Leather goods

Leather Footwear: Among the above mentioned product segments, the footwear segment is the pride of Indian
leather industry. It ranks second in the world, next to China. India is the world's second largest producer of footwear
with estimated production of more than 700 million pairs per annum. Footwear accounts for 18 percent share of
total exports of leather products worth U.S. $300 million per annum.

Various types of shoes produced and exported by India are dress shoes, casuals, moccasins, sports shoes,
huaraches, sandals, ballerinas, and booties. Major production centers are Chennai, Delhi, Agra, Kanpur, Mumbai,
Kolkatta and Jalandhar. Most of the Indian manufacturers of modern footwear are already supplying to major
brands in Europe and USA.

In the last five years, the leather footwear and footwear component production increased by 60%. Interestingly,
despite producing more of gents` footwear India is major producer of ladies footwear in the world.Though, the
Leather Industry, (especially the Footwear industry) has made a strong contribution to the Indian economy, India's
share in global trade remains as low as U.S. $ 30 billion.

Being a labor intensive industry, its contribution to employment is significant which consists of a large chunk of
illiterate workers. About 40% of employment is represented by unskilled workers indulged in table work operation
in the assembly line. Minority community and lower caste people have their sole source of livelihood from
collecting carcasses, skinning dead animals and tanning leather which also consist a large proportion of
employment provided by leather industry.
Leather Footwear Components: Leather footwear component is another important segment of the Indian leather
industry. The product range in this segment includes shoe Uppers, Sandal Uppers, Moccasin Lasted Uppers, Unit
soles, Insole and Sock Linings etc. which are mainly exported to UK, Germany, Italy, USA., France, Portugal,
Switzerland, Spain, Netherlands and Austria. The important production centers for this segment are Agra, Ambur,
Bangalore, Chennai, Delhi, Jallandhar, Kanpur and Mumbai.

Leather Garments: The Leather Garment segment occupies a significant place in the Indian leather industry. The
product classification of leather garments comprises of jackets, long coats, waist coats, shirts, pant/short, children
garments, motorbike jackets, aprons and industrial leather garments.

Indian leather garments sector entered the world market in the mid-eighties. It accounts for nearly $ 300 million of
exports. Germany is a major export market for leather garments. India, China and Turkey were the major suppliers
of leather garments to the German market and accounts for about 78% of the market share. Among the three
major exporting nations of leather garments, India has captured 20% of market share in both German and EU
markets. Other markets for India are Italy, U.K., U.S.A. France, Spain and Netherlands. Denmark, Switzerland and
Canada are among latest export destinations.

Leather Goods: The leather goods segment of Indian leather industry range from designer collections to personal
leather accessories, comprising of a wide range of products. And its share is nearly 21 per cent in Indian leather
industry. This product segment includes the products like bags, handbags, hand gloves, industrial gloves, wallets,
ruck sacks, folios, brief cases, travel ware, belts, sports goods, upholstery saddlery goods etc. The production of
these items mainly takes place in large number of units located in Chennai, Kanpur and Calcutta. Significant feature
of this is that it employees skilled labor and they are equipped with modern and sophisticated machinery. This
segment meets the requirements of bulk buyers and consumers in Europe, USA and Australia.

The major market for Indian leather goods segment is Germany, with an off take of about 25 per cent of the
leather goods produced in India followed by USA, UK, France and Italy. This leather goods segment has maintained
an average growth rate of 11 per cent during the last five years.
2.2.2 Production structure of Leather Industry

Unorganized sector plays a dominant role in the entire production of leather and leather products. The small scale,
cottage and artisan sectors account for over 75 per cent of the total production. Though the small scale industries
(SSI) are classified as organized sector most of them are in the unorganized sector. A contrast of product segments
with the production structure of the leather industry in India reveals that while footwear production is undertaken
both in large and small scale sectors, leather garments and other products are mainly produced in the small- scale
sector. In fact, though footwear is produced both in the large and small scale sector, the small scale sector has
almost 90 per cent share in the total production of footwear in India. There are about 42,000 registered SSI units in
India producing leather footwear.

Location wise Indian leather industry can be divided into 5 regions namely, southern region, northern region,
eastern region, western and central region. Among the five regions southern region is relatively wide spread and
comprises states like Tamil Nadu, Andhra Pradesh and Karnataka. Chennai, Ambur, Ranipet, Vaniyambadi, Trichy
and Dindigul are the major producing centers in the state of Tamilnadu. Whereas, the capital cities of Hyderabad
and Bangalore are the major production centres in the state of Andhra Pradesh and Karnataka respectively. Tamil
Nadu is the leading state in India in terms of number of registered factories for leather and footwear industry. The
state of Tamil Nadu had 37% (810) of total leather and footwear factories in India at the end of 2004-05. In the
northern region the state of Punjab and national capital territory of Delhi are the two main producing locations.
Jallandhar is the major producing centre in Punjab. In the eastern region West Bengal is the only state which
produces leather and leather products significantly where kolkata is the major producing centre. In the western
region, Maharastra is the major producing state for leather and leather products where Mumbai is the major
producing centre. Similarly, in the central region Uttar Pradesh is the major producer with Kanpur and Agra as the
two major producing centers. Uttar Pradesh is the second major state in India in terms of number of registered
factories with 15% of total factories in India at the end of 2004-05. The states of Tamil Nadu and Uttar Pradesh
together accounted for 52% of total factories in 2004-05. West Bengal and Punjab are the other key states in India
with significant number of registered leather and footwear manufacturing units. The following map provides the
distribution of leather production centers across the country.
The nature of these production centers varies in terms of the distribution of producing units and product segments.
For example, the small scale industries producing leather are mainly concentrated in the state of Uttar Pradesh and
Tamil Nadu.

As far as the concentration of various product segments are concerned, Agra and Ambur are the major production
centers of footwear and footwear components. Similarly, Bangalore, Chennai, Delhi, Hyderabad etc are leading
producers of leather apparels whereas Kanpur, Kolkata, Mumbai etc are the major producing centers for of leather
accessories. Thus, the different production centers cater to different segments of leather industry. Nevertheless,
there is a great deal of overlapping in this respect also because various segments of the leather industry are more
or less interrelated due to scale benefits on account of location.

2.3 Wages Salaries in Leather Sector

In the leather industry, that both female and male workers are offered the same wage and there is no
discrimination against female workforce. The total number of shifts across firms is approximately in the region of
26 per month. Large variations in wages paid to workers across firms are observed. These variations are noticeable
in terms of both payments made via piece rates or monthly wages.

Since the work in this industry is very skill based and people with any prior industry training are always preferred.
Such workforce is scarce in supply.

In the case of machinery usage, it is observed that across most units, firms have increased their machinery usage.
This shows that leather manufacturing units across the country are purchasing more machines and upgrading their
technology as new machines by and large embody better and improved technology of production.

Mixed response is found to adoption of modern technology in the recent past. It is asserted that this is due to the
fact that large firms have the financial capability to undertake investment in modern machineries and hence
consider technological up gradation as a natural phenomenon of moving to a higher end of value chain. On the
other hand, small firms because of several constraints- skilled manpower, expensive machinery and fluctuating
market demands are unable risk technological up gradation.

2.4 Competitive Benchmarking

XIX
The competitive benchmarking of India has been done with China, Italy and Brazil to identify the areas where India
has competitive advantages and disadvantages as compared to these countries. The exports of India have
registered CAGR of 3.61% from 2000 to 2006 as compared to 10% achieved by China. While the exports of India has
registered a higher CAGR as compared to Italy and Hong Brazil which are the other two major exporters of leather
and footwear products, the analysis of the value of exports show that the share of India in total exports of leather
and leather products in world is very low at 3.14%. The higher CAGR of India can also be attributed to lower exports
in absolute terms in 2001 as compared to Brazil and Italy.

The labour productivity index of India is among the lowest in the Asian Countries at 0.94 in 2005 as per the study
conducted by Asian Productivity Organisation (APO). Mongolia and China have the highest labour productivity
index at 1.65 and 1.56 in 2005. The labour productivity in India is very low as compared to China in production of
shoes, garments and leather goods. The pairs of shoes per employee per day in India are 20 pairs as compared to
China which was at 40 pairs. Similarly, the pieces of leather goods per employee per day in India are low at 6-8
pieces as compared to China at 12-15 pieces. The labour productivity of India has been impacted due to rigid
labour laws like lack of flexibility in contract labour laws. Units employing over 100 people currently fall under the
purview of Industrial Disputes Act. The Act stipulates that employers must obtain necessary approvals to effect lay-
offs. This proves to be a hindrance especially for small and medium enterprises.

2.5 Measures for Anti Dumping by Companies in India

As in most other countries, protection appears to have been the dominant motivation behind the levying of anti
dumping duties in India. General Agreement on Tariffs and Trade (GATT) therefore contains some contingent
measures, which permit the signatories to withdraw their normal obligations under specified circumstances and
impose higher protection against import of one or more goods from one or more countries. Contingent protection
measures fall under three categories -- antidumping, countervailing and safeguard measures.

Anti-dumping duties are expected to overcome only the problem of dumping. To deal with the problem of direct
and indirect Government subsidies there is provision for countervailing duties. In both cases injury and causal link
must necessarily be proved. Safeguard measures dealing with the problem of "increased imports" and neither
dumping nor subsidies need be present. For safeguard measures to be implemented serious injury to the domestic
industry is required to be established. Some safeguard measures are tariff increases or quantitative restrictions; it
remains a sparingly used measure, as compensation may have to be paid to the trading partners in appropriate
cases.

XX
The subject of anti dumping is very topical and highly controversial. There seems to be some ambiguity in the
definition of trade-distorting phenomenon ''dumping''. A product is said to have been dumped in the Indian market
if it is introduced into the commerce of the country at less than the normal value of the product and it
causes/threatens material injury to an established industry of the country. The phenomenon of dumping is per se
not condemnable as it is recognized that producers sell their goods at different prices to different market.
Differences in price are also due to demand and supply. Export prices are generally lower than domestic prices.
However, where dumping causes or threatens to cause material injury to the domestic industry of India, the
Authority (Ministry of Finance) initiates necessary action for investigations and subsequent imposition of anti-
dumping duties. Normal Value is the comparable price at which the goods are sold, in the ordinary course of trade.
The Normal Value cannot be determined by means of domestic sales. The act provides for the following two
alternative methods.

Comparable representative Export Price to an appropriate third country.

Cost of production in the country of origin with reasonable addition for administrative, selling and general
costs and for profits.

The 'Margin of Dumping' is generally expressed as a percentage of the Export Price. It refers to the difference
between the Normal Value of the similar article and the Export Price.
Article VI of the GATT states the measure to prevent dumping. Most WTO member countries have
adopted/amended their antidumping legislation largely in accordance with the GATT provisions to deal with
dumped imports. Pursuant to GATT 1994 detailed guidelines have been prescribed under the specific agreements
which have also been incorporated in the national legislations of the member countries of the WTO.

Since 1-1-95 Indian Laws have been amended in order to bring them in line with the provisions of the respective
GATT agreements. Sections 9A, 9B and 9C of the Customs Tariff Act, 1975 and the corresponding Customs Tariff
(Identification, Assessment and Collection of Anti-Dumping Duty on Dumped Articles and for Determination of
Injury) Rules, 1995 there under form the legal basis for anti-dumping investigations and for the levy of anti-
dumping duties. Some have raised questions about the ambiguities in antidumping regulations and procedures;
others have questioned the economic rationale behind such laws.

Imposition of Anti Dumping Duty is based on commodity to commodity, country to country and suppliers in
exporting countries. Global Trade Protection (GTP) report has reported that global anti-dumping activity has
remained at relatively low levels in 2005 and 2006. The reason being that commodity type prices remain relatively
high etc., a) less dumping is taking place and b) it can be difficult to establish that domestic industries are injured.
Despite the relatively low levels of anti-dumping activity worldwide. In India, the numbers of anti-dumping cases
have increased substantially over the last five years.

China continued to be the main target of anti-dumping cases in the recent years. Interesting to note, is the fact that
there is a significant upward trend towards China as a target. The proportion of global anti-dumping initiations
against China has been significantly increasing in recent years. The Global Trade Protection Report has found that
global trade protection activity in the first six months of 2007 was at a record low since the creation of the WTO.

XXI
The GATT agreement as well as the Indian laws provides that the injured domestic industry is allowed to file for
relief under the anti-dumping as well as countervailing duties. However, the same articles shall not be subjected to
both countervailing and anti-dumping duties to compensate for the same situation of dumping or export
subsidization.

The investigation process involves the following steps:

Screening - the document is scrutinized and if the evidence is not adequate, then a deficiency letter is issued
normally within 20 days of the receipt of the application.

Initiation - Public Notice is issued initiating an investigation to determine the existence and effect of the alleged
dumping. The Designated Authority notifies the diplomatic representative of the Government of the exporting
country before proceeding to initiate the investigation, within 45 days of the date of receipt of a properly
documented application.

Access to information - Non-confidential evidence is provided.

Preliminary Findings - in appropriate cases, finding containing the detailed information on the main reasons behind
the determination within 150 days of initiation.

Provisional Duty - not exceeding the margin of dumping, but only after the expiry of 60 days from the date of
initiation of investigation and will remain in force only for a period not exceeding 6 months, extendable to 9
months

Oral Evidence - request to opportunity to present the relevant information orally, but subsequently it must be
reproduced in writing.

Final Determination - within 150 days of the date of preliminary determination.

Disclosure of Information - interested parties must be informed of the essential facts which form the basis for its
decision before the final finding is made.

Time-limit for Investigation Process - one year from the date of initiation of the investigation, but maybe extended
for an additional six months.

Termination - under specified cases.

A retrospective application will not go beyond 90 days of the date of imposition of provisional duty. An anti-
dumping duty imposed under the Act shall have the effect for 5 years from the date of imposition, unless revoked
earlier. An appeal against the order of the Designated Authority may be filed with the Customs, Excise and Gold
(Control) Appellate Tribunal within 90 days of the date of the order. The Legislation provides for the collection and
refund of duty.

Another aspect of dumping which is not altogether trivial is the fact that, against the background of a once hungry-
for-imported-goods country, countries try to sell, and mostly succeed in selling, to India goods which would not be
saleable in their own countries mainly by virtue of quality

XXII
and age -- time elapsed and time remaining in relation to manufacturing date. It appears that there are no barriers
in India at which these types of goods are stopped and checked.

2.5.1 Chinese footwear remains controversial in EU

In October 2008, the European Union (EU) initiated an expiry review of anti-dumping duties on footwear with
leather uppers from China. EU anti-dumping measures are normally adopted for a 5 year period. However, due to
the extremely political nature of the footwear anti-dumping investigation, measures in this case were exceptionally
adopted for only 2 years. This reflected the fact that there was a large involvement of retailers and importers in the
investigation, significant because the EU has a public interest test (“Community interest”) before measures can be
adopted. The expiry review is just as controversial. Fifteen of the 27 EU Member States opposed the initiation of an
expiry review, believing that the measures should be allowed to expire after the 2 year duration. At initiation, the
European Commission is only obliged to consult the Member States and thus the investigation was initiated.
However, if the Commission determines that the measures should continue, 15 Member States would be sufficient
to block the continuation. Ultimately, Member States must adopt the measures proposed by the Commission and a
simple majority (14) is sufficient to force the expiry of the measures. The duty remains in place during the expiry
review. The Commission stated in a press release that it would work to complete the review as expeditiously as
possible, if possible in shorter than the usual timeframe of 12-15 months.

2.6 The Regulatory Regime

The continuous support of the Government has resulted in massive transformation of the Indian leather and
leather products sector. As maintained earlier, the industry which was a mere exporter of raw material in the sixties
has now become one of the major exporters of the value added finished products.

Recognizing the opportunities for Indian leather industry from globalization, the government over the last decade
and a half has under taken several initiatives. Those initiatives may be broadly divided into two categories. One is
competitiveness enhancing initiatives (those, directly affect the competitiveness) and the other is the trade
facilitating initiatives (those affect the exports). Of course, the trade facilitating initiatives also affect the overall
competitiveness of the industry, but they affect indirectly. Nevertheless, it is important to have a discussion of
these broad categories of initiatives undertaken by the government to improve the performance of the leather
industry in India.

2.6.1 Competitiveness Enhancing Initiatives

The government over the last decade and a half has undertaken various measures in order to enhance the
competitiveness of leather industry in India. Some of the important measures are be the followings. Firstly, as a
part of the liberalization measures, most of the items of manufacture in the leather sector have been de-licensed.
And the Government has de-reserved the manufacture of various types of leather including semi-finished leather,
harness leather, leather shoes etc. from small-scale sector.

XXIII
Secondly, National Leather Development Programme (NLDP) was implemented from April 1992 to September 1998
with the assistance from UNDP. The programme aimed at integrated development of the leather industry through
selected institutions/agencies in the country.

The programme was successful in creating institutional facilities of international standards and capacity to meet the
requirements of trained man-power. In order to consolidate the gains of this project and in line with sustainable
human development concerns, Phase-II of the programme, namely, SIDE-NLDP (Small Industries and Development
and Employment Programme in leather sector) was launched with UNDP assistance of US $ 7 million in September,
1998.

Thirdly, the Indian Leather Development Programme (ILDP) was implemented as one of the Ninth Plan programmes
to complement NLDP. The objectives of the ILDP were mainly to bridge critical gaps in the infrastructure for
integrated development of the leather industry, activate national agencies towards tackling gaps in the industry, to
promote productivity, value addition, encourage investment, trade development and building up of information
base for the leather industry.

Fourthly, National Leather Technology Mission (NLTM) was launched in 1995 for integrated development of tanning
sector. The programme mainly focused on areas like augmentation of raw material requirements of the leather
industry and promotion of environmentally cleaner leather processing methods through use of modern technology.
NLTM had a total of 172 activities covering 16 states in the country. In fact, the support for tannery modernisation
was given a very high priority under all the aforesaid programmes.

Fifthly, on June 30, 2005, the Cabinet Committee on Economic Affairs (CCEA) had decided to implement Rs 2.9
billion scheme for the integrated development of the leather sector. Under this scheme, modernization of existing
tanneries and setting up of new units for footwear, components and leather products were planned. This scheme is
expected to result in gains in terms of productivity, right-sizing of capacity, cost-cutting, and design-development.

Apart from the above initiatives which have direct implications for the competitiveness of Indian leather industry,
the government has undertaken several other initiatives in the recent years which are basically trade facilitating in
nature i.e. they aim at improving the prospects of export for Indian leather goods.

2.6.2 Trade Facilitating Initiatives

National Foreign Trade Policy (FTP) 2004-09 is perhaps one of the major initiatives which aims at improving export
prospects of Indian industries in general. However, some of its components grossly address the trade concerns of
the Indian leather industry in particular. Apart from those subcomponents, there are various other steps which the
government has undertaken in recent years in order to improve the export prospects of Indian leather goods. The
followings could be

XXIV
considered as some of the important trade facilitating initiatives of the government in the recent years.

Firstly, FTP 2004-09 primarily focuses on procedural simplification and trade facilitation measures. As a result
several schemes which were hitherto un-availed by the exporter have turned out to be attractive.

Secondly, the formation of Inter-State Trade Council to facilitate an enabling coordination between the Central and
State Governments in trade policy matters is a very significant step towards increasing export of Indian industries in
general and leather industries in particular.

Thirdly, the Export Promotion Capital Goods Scheme ( EPCG) scheme has been made further attractive to the SSI
sector, as the export obligation has been brought down from 8 times of duty saved to 6 times and procedures for
availing the EPCG scheme has been simplified.

Fourthly, the Advance License scheme has also been made more attractive with the introduction of various
procedural simplification measure, more particularly, all categories of exporters having past export performance
can now avail the Advance License for annual requirement, instead of the earlier practice of restricting the facility
to only status holders. Similarly, the special facility introduced to the Status Holders in the erstwhile EXIM Policy
2010-11 has also now been operationalized. The schemes would definitely incentivise the industry to aim at
aggressive growth.

Fifthly, a single common form called Aayaat Niryaat Form has been introduced which is a 50 page set of forms as
against the earlier 120 page set.

Sixthly, the export obligation on production of goods reserved for the small scale sector in the organized sector has
been brought down from 75 percent to 50 percent to encourage exports while providing a reasonable safeguard to
the small scale and cottage sector. Non-SSI units can, however, take up manufacture of finished leather from semi-
finished stage without any export obligation.

Seventhly, the government has allowed the import of raw materials and machinery and components under Open
General License (OGL) at concessional rates of duty.

Eighthly, government has made efforts to encourage domestic manufacturer of components by promoting joint
ventures and by duty rationalization on inputs.

Ninthly, the product segments like tanned/dressed fur skins and chamois leather has been removed from the list of
industries requiring compulsory licensing.

XXV
Tenthly, in tune with the growing demand for footwear, the government is setting up exclusive shoe component
parks for meeting the demands of the global sourcing majors.

Finally, the Prime Minister has recently approved development of leather sector under the Mission Mode, since
various ministries like the Animal Husbandry, Rural development, commerce and industries, Finance etc are
involved in the development of this sector. Consequent upon the approval of the Mission Mode, the Planning
Commission has constituted an Inter Ministerial Committee so that the inter-ministerial issues could be sorted out
in a single forum.

With all such pro-active policy initiatives undertaken by the government in recent years, it is expected that the
share of Indian leather industry in the global leather trade will increase from the present 2.32% to 4.2% by 2010,
thereby its exports in value terms will enhance from the present Rs.10000 to Rs.20000 crore, and in the process the
industry will provide an additional employment to about one million people. However, the Expectations would get
translated into reality if and only if the Indian leather industry grows significantly in the coming years. In an era of
globalization there are two important things which govern the growth. One is the opportunity available from the
globalization and the other is the competitive potential of the industry to capitalize the opportunity. Therefore, it is
pertinent to analyse the prospects for Indian leather industries from globalization.

XXVI
 CHAPTER III

PRODUCTIVITY OF LEATHER & LEATHER PRODUCTS SECTOR

3.1 Introduction

This chapter analyses productivity performance of organized registered manufactures. The organized factory sector
occupies an important position in leather production in India.* Though its share is less in comparison to
unorganized sector, its importance cannot be under estimated. Structurally, the organized factory sector consists of
both small scale and large-scale registered enterprises. The developments in the organized factory sector are easily
visible and the implications of government policy (both domestic and global) can be easily assessed since the data
are available on a continuous time series Considering these facts an attempt has been made in the following
sections to analyse the leather industry (organized factory sector/ registered manufacturing) in India.

3.2 The Key Features of the Registered Factory Sector

A brief look at the leather sector (registered manufacturing) at the all India level suggests that the industry has not
experienced any significant growth in terms of Gross Value Added the years (Table 3.1). However, compound
annual growth rate of employment during 1980-81 to 2011-12 has shown positive trends at an annual rate of 2.36
per cent. By 1990-91 total employment, value of output and value added declined in absolute terms as compared
to 1980-81 levels.

In the 1990s however, the industry has recovered. A comparison between the levels of 2009-10 and 2011-12
reveals that the value added and value of output has started showing signs of recovery (Table 3.1). The number of
workers and the number of factories have also increased considerably during this period.

Thus, the above analysis suggests that the organized leather industry in India has started showing signs of growth in
the recent years as compared to nineties. This probably indicates that the measures adopted during economic
liberalization did help the organized segment of leather manufacturing in India.

*(Factory is one that is registered under sections 2m (i) and 2m (ii) of the Factories Act, 1948. The sections 2m (i)
and 2m (ii) refer to any premises including the precincts thereof (a) whereon ten or more workers are working, or
were working on any day of the preceding twelve months, and in any part of which a manufacturing process is
being carried on with the aid of power, or is ordinarily so carried on; or (b) whereon twenty or more workers are
working or were working on

XXVII
Table 3.1: Characteristics of Registered Leather Industry in India (Value in Rs. Lakhs, others in Numbers)

Indicators 1980- 1990- 2000- 2003- 2004-05 2005-

81 91 01 04 06

Number of Factories 1298 1782 2378 2337 2293 2444

Number of Workers 97305 92915 114467 118154 126604 146704

Gross Value Added 138897 127438 88996 92673 87899 117894

(Constant Prices 1993-

94=100)

Value of Output (Constant 718276 407316 637945 649808 657968 783405

Prices 1993-94=100)

Source: Computed from Annual Survey of Industries, CSO, Summary results of Factory Sector

3.3 Data and Variables

Gross value added (net value added + depreciation) has been considered for the estimation of productivity ratios.
In order to eliminate the price effect from the increasing value added, the gross value added figures have been
deflated by using the whole-sale Price Index (WPI). From the WPI, the price index for the leather and leather
products at 1993-94 base prices has been taken into account for deflating the data on gross value added since it
covers all categories of the products from the sector.

3.4 Growth Rate Analysis of Leather Industry

A period wise growth analysis of the organized leather industry in India has been presented in table 3.2

XXIX
Table 3.2: Growth of Organized Leather Industry

Period I Period II Period III

(1980-81 to (1990-91 to
Indicators (2009-10 to
1990-91) 2009-10) 2011-12)

Compound Annual Growth Rate (CAGR) (%)

Gross Value Added (At Constant -0.86 -4.39 5.79

Prices)

Value of Output (At Constant Prices) -5.51 5.77 4.19

No. of Factories (Nos) 3.22 3.67 0.55

Workers (Nos) -0.46 2.64 5.09

Note: Labour Productivity has been estimated as GVA/Number of Workers

Source: Computed from Annual Survey of Industries, CSO, Summary results of Factory Sector

Value of Output (at constant prices) has been found increasing continuously during the liberalization period.
Though eighties was a decade of better industrial growth, the leather industry did not perform well resulting in
negative growth rates. Nevertheless, the sector has experienced a great deal of recovery in the decade and a half of
liberalization. Internal liberalisation and trade reforms have certainly helped the leather industry to gain some
market share in the world market. However, the extent to which Indian leather industry can survive or grow or
emerge as a leader depends on its competitive potential. Since, the leather industry, be it organized or
unorganized, across the globe is basically labour intensive, the improvement in labour productivity will primarily
govern the competitiveness of the sector.

3.5 Labour Productivity Growth

Table 3.2 has given an overall picture of labour productivity growth in the leather industry. However, it is pertinent
to have a look at the labour productivity across various broad segments of the leather industry in India. Labour
productivity growth across different segments of leather industry has been presented in table 3.3.
 .3: Labour Productivity Growth in Indian Leather Industry: Segmentwise Analysis

Period I: Period II: Period III:

Industry Code 1980-81 to 1990-91 to 1999- 2009-10 to 2004-

1989-90 00 05

Tanning and 1911 -1.39 4.99 3.79

Dressing of

Leather
Manufacture of
Luggage,
Handbags, and 1912 11.76 4.70 0.36
the like, Saddlery
and Harness

Manufacture of 1920 -11.20 4.33 -4.95

Footwear

Entire Leather 1911+1912+19 -9.40 4.36 -2.31

Industry 20

Note: Labour Productivity has been estimated as GVA/Number of workers

Source: Computed from Annual Survey of Industries, CSO, Summary results of Factory Sector
It may be seen from tables 3.3 that labour productivity in different segments of the leather industry has been
growing consistently since 1990-91. Of course, the only exception has been the manufacture of Luggage,
Handbags and the like, Saddlery etc. Unlike other sectors it did not experience negative growth in labour
productivity in the eighties. And also this segment had experienced a decline in growth rate during nineties
while all other segments improved in terms of labour productivity growth. Interestingly, this sector exhibits the
highest growth in labour productivity in the recent years. The contrasting performance of manufacture of
Luggage, Handbags and the like, Saddlery etc. among other segments the leather industry in India could be due
to the fact that this segment prominently focus on the domestic market.

In the recent years, riding on domestic growth and opportunities of globalization, various segments of Indian
leather industry have started performing well, particularly in terms of growth in labour productivity.
However, the major concern is that the footwear sector, the pride of Indian leather industry in the global
market trails behind other segments in terms of labour productivity growth.

Hence, in order to enhance the competitive edge of the leather industry, it is important that labour
productivity need to be improved considerably across all segments of the industry especially for the
footwear segment.
employment from around 19 percent ( 1990-95) to about 5 percent (2000-2003). In addition, the L/K ratio is also
seen declining- 1.27(1990-95), 0.89(1996-99) and 0.58 (2000-03).

3.6 Partial and Total Factor Productivity Analysis of Leather Industry

In this section we analyse partial productivities (labour and capital) and total factor productivity growth (TFPG). The
detailed methodology adopted for the estimation of partial (labour & capital) and TFPG are given in Annexure 3.
The estimated partial productivity ratios for both labour and capital factor inputs are given in table 3.4.

Table 3.4: Productivity Estimates for Labour and Capital inputs

Year Capital productivity Labour Productivity

(at Per Rupee Invested) (at Per Person Employed)

2013-14 0.64 60976

1996-97 0.63 64866

1997-98 0.83 79710

2008-09 0.62 79748

1999-00 0.68 88107

2009-10 0.49 64385

2001-02 0.64 70170

2002-03 0.66 60553

2010-11 0.75 63490

2004-05 0.73 58647

2011-12 0.84 67797

Note: Productivity has been estimated as GVA/Factor imput

Source: Estimated from ASI- Summary results of factory sector, CSO.

XXXII
From table 3.4 it may be noted that partial productivity estimations for labour and capital productivity at the all
India level have reported wide fluctuations during 2013-14 to 2011-12 period. Capital productivity was found
fluctuating in the range of Rs. 0.49 to Rs. 0.84 while labour productivity was found in the range of Rs. 58647 to Rs.
88107 during 2013-14 to 2011-12.

Table 3.5 provides year on year growth rate estimations for capital, labour and total factor productivity growth. It
may be noted that capital productivity growth during 2013-14 to 2009-10 was quite negligible while 2009-10 to
2011-12 period exhibited negative growth at the rate of -5% per annum. However, labour producyivity growth
reported positive growth for both periods at 2% and 1% respectively. In the case of Total Factor Productivity
Growth we find annual average growth rate at 1% during 2013-14 to 2009-10 and 2% during 2009-10 to 2011-12.

XXXIII
 Table 3.5: Labour, Capital and Total Factor Productivity Growth (%)

Year Capital Labour Total factor

Productivity Productivity Productivity
Growth Growth Growth

2013-14 -- -- --

1996-97 -1.93 6.38 0.99

1997-98 31.82 22.88 -9.51

2008-09 -25.55 0.05 14.52

1999-00 9.25 10.48 -3.79

2009-10 -27.55 -26.92 10.80

2001-02 30.36 8.98 -19.71

2002-03 2.81 -13.70 8.21

2010-11 14.57 4.85 -4.39

2004-05 -2.84 -7.63 3.75

2011-12 14.40 15.60 14.46

Average for the

Period 1996-97 to
2009-10 -2.79 2.57 2.60

Average for the

Period 2009-10 to
2011-12 5.23 0.34 4.93

Source: Computed from Annual Survey of Industries, CSO, Summary results of Factory Sector

Since the annual growth rates exhibit wide fluctuations, for getting a better picture of the
growth rate analysis it has been depicted in an index form in table 3.6. Among the three growth
rates capital productivity has reported the highest index at 145.34 by 2011-12, while labour
productivity has reported 120.97 and Total Factor Productivity has grown to 115.33.

XXXIV
CHAPTER
EXPORT TRENDS IN LEATHER AND LEATHER PRODUCTS

4.1 Introduction

The importance of exports in the growth of an industry cannot be underestimated in

the era of globalization. The exports of leather and leather products to the rest of
the world have registered a steady increase over the years as it increased from
1279.19 million US $ in 1991-92 to 3433.30 million US $ by 2013-14 (Table 4.1).

The global trade in leather and footwear is expected to further increase after the
abolition of quota regime in January, 2005. The relative shares of the components
have changed over the years. The share of leather footwear has declined over the
years from 36.56% to 33.92% and even the share of saddlery and harness has
registered a small increase over the years from 1.20% in 2013-14 to 3.08% in 2013-
14. The shares of leather garments and leather footwear components have
registered a steep decline over the years and the share of finished leather and
leather goods has declined marginally in the past few years but ultimately increased
in 2013-14 as compared to 2013-14.

Table 4.1: Composition of India’s Leather Exports: 1991-92 to 2013-

14

Product US $
Million

Categories 1991-92 2013- 2009- 2010- 2011- 2012- 2013-14

14 10 11 12 13

Leather footwear 467.26 340.92 381.99 553.42 786.65 950.90 1164.39

S hare % 36.56 19.42 19.61 25.56 29.96 31.89 33.92

Leather goods 810.93 363.14 441.09 539.58 649.04 690.66 785.33

Share % 63.44 20.69 22.65 24.92 24.72 23.16 22.87

Finished leather -- 371.85 382.11 556.09 605.97 688.35 767.31

Share % -- 21.18 19.61 25.69 23.08 23.09 22.35

Leather garments -- 414.21 461.21 301.29 328.39 306.98 344.16

Share % -- 23.60 23.68 13.91 12.50 10.30 10.03

Leather footwear -- 243.33 238.48 161.38 179.01 212.65 266.24

components

Share % -- 13.86 12.24 7.45 6.81 7.13 7.76

Saddlery and -- 21.38 42.73 52.75 76.39 81.85 105.87

Harness

Share % -- 1.20 2.19 2.43 3.08

Total leather 1279.19 1754.84 1947.61 2164.51 2625.46 2981.79 3433.30

products

Source: Foreign Trade and Balance of Payments, CMIE (various issues),

Annual Report DIPP, Ministry of Commerce & Industry (various issues)
India’s leather and leather products exports are growing at the rate of 6.80% during
1991-92 to 2013-14. Table 4.2 provides the direction of trade with respect to
leather and leather products from India. Germany, USA, UK, Italy and Hong Kong are
the major destinations of India’s exports of leather and leather based products.

Though the volume of Leather export from India has been increasing during 1991- 92 to 2013-
14, the shares of Germany, USA and Australia have decreased whereas the shares of UK, Italy,
Hong Kong, Spain, France, Netherlands and UAE have increased over time. Germany remains
the major importer of leather and leather based products though its share in India’s total exports
is decreasing.

Impact on Exports due to Financial Turmoil: As per compilation of export data

by ouncil of Leather Exports, based on Customs Monthly Data, export of leather &
leather products for the period April-October 2008 was USD 2,177 million as
compared to USD 1,914 million in the corresponding period of last year, registering
a positive growth of 14% in USD. In Rupee terms, the total export from India
increased to Rs. 94,852 million in the period from April October, 2008 as compared
to Rs. 77,869 million in the period from April-October, 2007 growing at 22%. The
above growth in exports of leather and footwear industry in both Rupee and USD in
the first six months of FY 2008-09 shows that exports of the industry has not been
impacted by financial turmoil in period from April-October, 2008. The impact of
financial turmoil on the exports of leather and footwear industry is expected to be
felt in the last two quarters of FY 2008-09.
Table 4.2: Direction of India’s Leather Exports: 1991-92 to 2013-14

US$ Million
Country
2003-
1991-92 2013-142009-10 04 2011-122012-13 2013-
14

Germany 280.92 400.62 306.02 322.18 357.20 397.94 486.91

Share % 21.92 22.83 15.71 14.88 13.24 13.58 18.77

UK 146.01 197.89 265.88 238.1 335.61 349.24 407.64

Share % 11.42 11.27 13.65 11 12.44 11.92 15.71

USA 177.54 295.05 342.83 245.24 310.40 302.79 304.30

Share % 13.88 16.81 17.60 11.33 11.51 10.33 11.72

Italy 124.38 221.05 238.87 277.2 308.61 395.03 475.60

Share % 9.73 12.59 12.26 12.80 11.44 13.48 18.33

Hong Kong 30.55 59.5 98.37 227.06 251.42 265.09 267.99

Share % 2.39 3.39 5.05 10.49 9.32 9.04 10.33

Spain 27.88 50.79 100.33 158.43 198.60 179.62 210.42

Share % 2.18 2.89 5.15 7.31 7.36 6.13 8.107.

France 61.7 88.54 88.67 107.65 140.73 168.18 194.27

Share % 4.82 5.04 4.55 4.97 5.22 5.74 7.49

Netherlands 21.81 38.42 55.52 57.01 81.94 97.68 133.10

Share % 1.70 2.18 2.85 2.63 3.04 3.33 5.13

UAE 5.99 12.23 17.96 34.73 48.48 53.62 64.87

Share % 0.46 0.69 0.92 1.65 1.80 1.83 2.50

Australia 25.04 40.42 27.95 31.56 42.80 37.82 49.52

Share % 1.95 2.30 1.43 1.45 1.59 1.29 1.91

Other
countries 376.38 350.33 405.21 465.35 -- -- --

Share % 29.44 19.96 20.80 21.49 -- -- --

World Total 1278.2 1754.84 1947.61 2164.5 2075.79 2247.01 2594.52

1

Source: Foreign Trade and Balance of Payments, CMIE (various issues),

Annual Report DIPP, Ministry of Commerce & Industry (various issues)

4.2 Export of Finished Leather

India’s export of finished leather has been growing at the annual rate of 6.42% from
1993-94 to 2013-14. Table 4.3 provides the direction of trade with respect to
finished leather products from India. Hong Kong is one of the major export
destinations of India’s finished leather products. Hong Kong cornered the largest
share (42.25%) of India’s finished leather exports in 2013-14. There has been a rise
in both absolute and relative shares of most of countries in exports of India’s
finished leather except USA, Germany, France and Spain have registered a marginal
fall in recent years. Also, volume of imports by Germany, France and USA has
decreased over the years.

I
Table 4.3: India’s exports of finished leather: Destination wise (US$ Million)

1993-
Country 94 1997-98 2009-10 2010-11 2011-12 2012-132013-14

Hong Kong 45.93 47.75 90.43 199.5 242.91 257.65 256.21

Share % 17.01 16.12 23.66 35.87 38.18 37.47 42.25

Italy 56.73 64.46 85.7 85.68 86.19 115.44 133.53

Share % 21.01 21.76 22.42 15.40 13.55 16.79 22.02

China 3.53 3.18 8.41 21.61 34.86 37.20 48.25

Share % 1.30 1.07 2.20 3.88 5.48 5.41 7.95

Germany 26.58 29.37 20.96 22.78 34.56 24.20 32.73

Share % 9.84 9.84 5.48 4.09 5.43 3.52 5.39

Korea Republic 3 2.96 15.66 24.3 33.51 33.14 27.64

Share % 1.11 0.99 4.09 4.36 5.27 4.82 4.55

Spain 15.82 26.71 29.94 35.97 22.53 20.56 26.62

Share % 5.85 9.01 7.83 6.46 3.62 3.43 4.38

Vietnam -- 0.68 2.27 22.06 23.03 23.57 34.53

Share % -- 0.22 0.59 3.96 3.62 3.43 5.69

Malaysia 1.25 3.29 3.3 7.52 13.51 22.60 29.00

Share % 0.46 1.11 0.86 1.35 2.12 3.29 4.78

France 13.67 16.34 13.4 15.28 13.09 11.49 9.74

Share % 5.06 5.51 3.50 2.74 2.06 1.67 1.66

USA 16.96 10.9 12.43 7.87 12.24 9.68 8.22

Share % 6.28 3.68 3.25 1.41 1.92 1.41 1.36

Other countries 86.52 90.55 99.61 113.52 -- -- --

Share % 32.04 30.57 26.06 20.41 -- -- --

World Total 269.99 296.19 382.11 556.09 516.09 555.53 606.47

Source: Foreign Trade and Balance of Payments, CMIE (various issues),

Annual Report DIPP, Ministry of Commerce & Industry (various issues)

4.3 Export of Leather Footwear

India’s export of leather footwear has been growing at the rate of 3.50%
during 1991-92 to 2013-14. The leading importer of Indian leather footwear
product is UK followed by Germany, USA, Italy and France (Table 4.4). The
volume of imports by all the major countries has been increasing over time.
The share of UK has been declining since 2009-10 showing a slight increase
in recent years. Still it is a major importer of India’s leather footwear. The
shares of USA has been declining in India’s leather footwear exports while
Germany’s share has increased marginally. Italy, France, Spain, Netherlands,
Belgium and UAE have increased their relative shares in India’s exports of
leather footwear.

Table 4.4: India’s exports of leather footwear: Destination wise (US $

Million)

Country 1991-92 2013-14 2009-10 2010-11 2011-12 2012-13 2013-14

UK 54.18 56.31 100.82 124.62 164.15 188.04 215.92

Share % 11.59 16.51 26.39 22.51 20.78 20.52 21.93

Germany 80.45 67.56 48.89 110.81 140.85 174.47 203.43

Share % 17.21 19.81 12.79 20.02 17.44 19.04 20.66

USA 81.33 97.21 104.09 80.7 121.14 116.40 131.61

Share % 17.4 28.51 27.24 14.58 15.00 12.70 13.37

Italy 40.65 8.28 12.83 58.27 91.00 130.75 166.27

Share % 8.69 2.42 3.35 10.52 11.28 14.27 16.89

France 13.99 11.2 19.49 37.68 56.93 74.28 86.77

Share % 2.99 3.28 5.1 6.8 7.05 8.11 8.81

 Spain 0.72 1 3.87 19.53 43.27 46.07 56.22

Share % 0.15 0.29 1.01 3.52 5.36 5.03 5.71

Netherlands 3.78 5.95 11.16 17.61 29.51 43.35 69.34

Share % 0.8 1.74 2.92 3.18 3.65 4.73 7.04

Belgium 3.64 1.76 5.04 8.13 20.08 20.94 29.30

Share % 0.77 0.51 1.31 1.46 2.49 2.28 2.98

UAE 2.92 5.49 8.62 11.66 19.99 22.07 25.73

Share % 0.62 1.61 2.25 2.1 2.47 2.41 2.61

Denmark 11.98 2.6 4.83 10.55 16.01 13.29 --

Share % 2.56 0.76 1.26 1.9 1.98 1.45 --

Other
countries 173.62 83.56 62.35 73.86 -- -- --

Share % 37.15 24.51 16.32 13.34 -- -- --

World Total 567.19 440.87 481.93 653.35 789.97 916.43 984.59

Source: Foreign Trade and Balance of Payments, CMIE (various issues), Annual Report DIPP,
Ministry of Commerce & Industry (various issues)

4.4 Export of Leather Goods

India’s export of leather goods have been decreasing at the rate of 1.58%
during 1991-92 to 2013-14 periods. Table 4.5 provides the direction of trade
with respect to leather goods from India. Germany’s position as the major
destination of India’s leather goods exports during the early 90’s has
changed drastically. It was displaced by UK as the leading importer of India’s
leather goods. The imports by Germany, Italy and France have increased
recently from 2012-13 to2013-14 but finally have shown a decrease in
absolute terms along their shares when compared with 1991-92. USA, Spain,
Netherlands, Australia, UAE and Belgium have increased their imports from
India in absolute as well as relative terms.
Table 4.5: India’s Exports of Leather Goods: Destination wise (US $
Million)

Country 1991- 2013-14 2009-10 2010- 2011-12 2012-13 2013-14

92 11

USA 96.21 78.37 107.89 98.87 116.00 124.30 121.43

Share % 11.86 21.58 24.45 18.32 17.57 18.01 19.35

UK 91.83 33.86 46.14 63.59 110.60 111.25 131.62

Share % 11.32 9.32 10.46 11.78 16.76 16.12 20.97

Germany 199.8 117.25 85.95 92.38 91.07 99.12 121.43

Share % 24.63 32.28 19.48 17.12 13.80 14.34 19.35

Spain 27.15 8.83 18.26 40.03 51.19 52.18 59.14

Share % 3.34 2.43 4.13 7.41 7.76 7.56 9.42

Italy 83.75 13.68 23.72 36.61 46.32 49.72 56.27

Share % 10.32 3.76 5.37 6.78 7.02 7.20 8.97

Netherlands 18.03 14.08 19.88 22.32 30.68 31.43 36.13

Share % 2.22 3.87 4.50 4.13 4.65 4.55 5.76

France 47.7 14.83 19.36 22.19 26.56 30.75 34.91

Share % 5.88 4.08 4.38 4.11 4.02 4.46 5.56

Australia 17.78 15.8 10.96 16.99 25.62 21.28 27.96

Share % 2.19 4.35 2.48 3.14 3.88 3.08 4.46

UAE 3.06 3.49 6.46 16.68 22.68 21.02 25.10

Share % 0.37 0.96 1.46 3.09 3.44 3.04 4.00

Belgium 6.13 5.91 6.97 9.24 10.25 11.51 13.54

Share % 0.75 1.62 1.58 1.71 1.55 1.67 2.16

Other countries 219.49 57.04 95.5 120.68 -- --

Share % 27.06 15.70 21.65 22.36 -- --

World Total 810.93 363.14 441.09 539.58 660.07 690.19 627.53

Source: Foreign Trade and Balance of Payments, CMIE (various issues), Annual
Report DIPP, Ministry of Commerce & Industry (various issues)

4.5 Export of Leather Garments

India’s export of leather garments have been decreasing at a rate of 2.46% during
2013-14 to 2013-14. Table 4.6 provides the direction of trade with respect to
leather garments from India. Germany is the leading importer of leather garments in
2008-09. Germany, Italy, USA, France, UK and Netherlands have all started
importing less of Indian leather garments over the years. USA’s import from India
increased once during 2009-10 otherwise it has declined over the period.
Surprisingly, Spain and Canada has experienced drastic increase in exports from
India in this sector.

Table 4.6: India’s exports of leather garments: Destination wise (US$ Million)

Country 2013-14 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Spain 5.47 19.82 40.07 45.36 60.2 42.91 47.61

Share % 1.32 5.18 8.68 15.05 18.06 13.9 17.12

Germany 122.05 114.76 93.88 57.67 55.67 53 68.81

Share % 29.46 30.04 20.35 19.14 16.71 17.17 24.75

Italy 68.21 60.7 54.27 53.49 47.36 52.3 58.34

Share % 16.46 15.72 11.76 17.75 14.21 16.64 20.98

USA 73.53 47.02 102.58 46.86 45.11 36.72 27.75

Share % 17.75 12.31 22.24 15.55 13.54 11.89 9.98

France 32.67 28.12 24.81 16.8 22.78 23.34 27.11

XLVI
Share % 7.88 7.36 5.37 5.57 6.84 7.56 9.75

UK 41.21 38.81 54.31 23.18 21.41 22.39 23.10

Share % 9.94 10.16 11.77 7.69 6.42 7.25 8.31

Canada 2.8 3.29 8.34 5.93 10.06 8.53 8.94

Share % 0.67 0.86 1.8 1.96 3.02 2.76 3.22

Denmark 9.08 9.22 15.77 4.77 10.15 11.32

Share % 2.19 2.41 3.41 1.58 3.05 3.67

Netherlands 13.57 16.16 14.32 7.33 8.94 10.89 11.26

Share % 3.27 4.23 3.1 2.43 2.68 3.53 4.05

Belgium 2.12 2.99 2.19 4.04 6.06 5.14 5.11

Share % 0.51 0.78 0.47 1.34 1.82 1.67 1.84

Other
countries 43.5 41.05 50.67 35.86 -- -- 47.61

Share % 10.5 10.74 10.98 11.9 -- -- 17.12

World Total 414.21 381.94 461.21 301.29 333.25 308.78 278.03

Source: Foreign Trade and Balance of Payments, CMIE (various issues), Annual Report
DIPP, Ministry of Commerce & Industry (various
issues)

4.6 Export of Leather Footwear Components

India’s export of leather footwear components have been decreasing at a rate of

2.27% during 2013-14 to 2013-14. (Table 4.8) Italy, Germany and France are the
major importers of Indian Leather Footwear components. Despite this decline India’s
exports of leather footwear has increased to most of the countries except U.K. and
Austria in both absolute as well as relative terms. Though shares of Spain, Portugal
and Slovakia has declined in recent years but their shares have increased drastically
from 1991-92 to 2013-14.

Table 4.7: India’s Exports of Leather Footwear Components: Destination Wise (US $
Million)

XLVII
 Country 2013-14 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Italy 54.11 58.06 61.04 41.44 34.84 44 56.24

Share % 22.23 24.08 25.59 25.67 19.09 20.7 33.39

Germany 55.71 53.05 48.7 27.66 24.11 34.17 40.56

Share % 22.89 22 20.42 17.13 13.21 16.08 24.08

UK 47.31 57.94 50.18 17.2 21.71 12.5 18.07

Share % 19.44 24.03 21.04 10.65 11.89 5.88 10.72

Spain 1.6 4.05 7.01 15.65 18.88 14.91 17.29

Share % 0.65 1.68 2.93 9.69 10.34 7.02 10.26

Portugal 7.42 11.39 17.88 12.9 16.35 15.07 --

Share % 3.04 4.72 7.49 7.99 8.96 7.09 --

France 4.38 9.93 8.44 10.96 14.58 21.17 26.53

Share % 1.8 4.11 3.53 6.79 7.98 9.96 15.75

Switzerland 3.88 6.67 4.95 4.42 7.33 7.99 8.2

Share % 1.59 2.76 2.07 2.73 4.01 3.76 4.86

Slovakia 0.05 0.17 3.89 3.83 7.13 14.93 --

Share % 0.02 0.07 1.63 2.37 3.91 7.03 --

Austria 5.2 2.09 2.86 5 5.28 3.13 1.52

Share % 2.13 0.86 1.99 3.09 2.89 1.14 0.90

Hungary -- -- 0.05 1.82 4.57 5.09 --

Share % -- -- 0.02 1.12 2.5 2.4 --

Other 63.67 37.71 33.48 20.5 -- -- --
countries

Share % 26.16 15.64 14.03 12.7 -- -- --

World Total 243.33 241.06 238.48 161.38 182.55 212.51 168.41

Source: Foreign Trade and Balance of Payments, CMIE (various issues), Annual Report
DIPP, Ministry of Commerce & Industry (various
issues)
4.7 Export of Saddlery and Harness

India’s export of saddlery and harnesses has been increasing at a rate of 8.96% in
the period of 2013-14 to 2013-14. Table 4.8 provides the direction of trade with
respect to saddlery and harness from India. India’s volume of exports of saddlery
and harness to all the ten major importing nations has been increasing in the period
2013-14 to 2013-14 but the shares of USA, Netherlands and Australia have been
declining in India’s saddlery and harness exports. Despite this, there is a
phenomenal increase in the growth rate of India’s exports of saddlery and harness
indicates that India is capable of diversifying and exporting to more and more
countries.

Table 4.8: India’s Exports of Saddlery and Harness: Destination Wise (US$ Million)

Country 2013-14 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

UK 1.68 2.73 8.4 5.93 14.91 12.49 16.24

Share % 7.85 8.23 19.65 11.24 24.24 19.04 19.26

USA 5.42 6.33 8.92 8.92 13.91 14.82 13.36

Share % 25.35 19.09 20.87 16.9 22.61 22.59 15.84

Germany 3.95 8.42 7.64 10.88 10.94 13.09 19.75

Share % 18.47 25.39 17.87 20.62 17.79 19.95 23.42

France 2.27 2.42 3.17 4.74 6.80 7.14 9.21

Share % 10.61 7.3 7.41 8.99 11.06 10.88 10.92

Sweden 0.83 1.76 1.63 2.27 3.74 4.70 6.37

Share % 3.88 5.3 3.81 4.3 6.08 7.16 7.55

XLIX
 Netherlands 1.71 2.76 1.9 2.91 3.68 3.38 5.59

Share % 7.99 8.32 4.44 5.51 5.98 5.15 6.63

Italy 0.54 0.78 1.32 1.73 2.80 2.83 4.92

Share % 2.52 2.35 3.08 3.27 4.55 4.31 5.83

Spain 0.51 0.65 1.18 1.91 2.53 3.00 3.54

Share % 2.38 1.96 2.76 3.62 4.11 4.57 4.20

Australia 1.1 1.47 2 1.97 2.20 4.16 5.35

Share % 5.14 4.43 4.68 3.73 3.58 6.34 6.34

Other 3.37 5.81 6.56 11.48 -- -- 16.24

countries

Share % 15.76 17.52 15.35 21.76 -- -- 19.26

World Total 21.38 33.15 42.73 52.75 61.51 65.61 84.33

Source: Foreign Trade and Balance of Payments, CMIE (various issues), Annual
Report DIPP, Ministry of Commerce & Industry (various issues)

4.8 Major Leather Products Exporting Countries in the World

Table 4.9 gives the major leather and leather products exporting countries and their share
in world trade. China corners the largest share among all the nations in the export of
leather and leather product. Its share has been rising steadily from 17.77% in 2000 to
32.11% in 2006. Though Italy’s share has been steadily declining it still remains a major
exporter of leather and leather products next only to China. Brazil’s exports have been
declining steeply from 2000 to 2006. Shares of countries like Korea Republic, Indonesia and
Taiwan have been steadily declining.

Table 4.9: Export Share of Major Leather Producing Countries in the World

L
 Country Export
Share
As a percentage (%) of World
Export
2000 2004 2006

China 17.77 21.99 32.11

Italy 15.89 15.81 10.74

Brazil 3.14 3.39 0.34

India 2.54 2.44 3.14

Romania 1.09 1.71 0.47

Korea Republic 3.19 1.63 0.29

Indonesia 2.49 1.53 0.41

Taiwan 1.97 1.26 0.32

Rest of the world 51.92 50.24 52.13

World Total 100.00 100.00 100.00

Total Volume (US$ Million) 77331.26 97606.18 --

Source: World Statistics, ITC, Geneva, India’s exports, DGCI & S

4.9 World Leather Exports Growth

The volume of world trade in leather and leather products has been steadily increasing.
The growth rate during the 2004-06 was 55.48% compared to 5.99% growth in the pre
2000-04 time period (Table 4.10). This shows that there was impressive growth in world
trade of leather and leather manufactures in the post 2000 period.

Indian export’s growth rate has shown a marginal increase in the post 2004
period and its growth rate lags behind that of China, which registers an
impressive growth rate of 11.79% in the pre 2004 period and 28.02% in the
post

LI
2004 period. Romania is another country, which registers an impressive
growth rate of 18.78% and 21.63% during the time period 2000-04 and
2004-06 respectively. Italy is another nation which has shown an
impressive growth rate of 16.80% during 2004-06 as compared to 5.86%
during 2000-04. But India is better off than some nations like Brazil and
Taiwan, which have been suffering from negative growth rates for both the
post 2004 period.

Table 4.10: Growth in World Trade of Leather and Leather Products

US $ Million CAGR
%
Countries
2000 2004 2006 2000-04 2004-06

India 1963.55 2379.44 2621.00 4.91 4.97

China 13741.54 21464.30 35182.24 11.79 28.02

Italy 12286.64 15432.76 21056.75 5.86 16.80

Brazil 2427.39 3307.49 2382.79 8.04 -15.12

Romania 839.64 1671.43 2473.06 18.78 21.63

Korea Republic 2465.80 1587.48 2040.80 -10.42 13.38

Indonesia 1923.01 1490.06 1876.37 -6.17 12.21

Taiwan 1526.23 1227.81 1210.46 -5.29 -0.70

World trade 77331.26 97606.18 235956.92 5.99 55.48

CAGR= Cumulative Average Growth Rates

Source: World Statistics, ITC, Geneva, India’s exports, DGCI & S

LII
 CHAPTER V

GLOBALIZATION AND PROSPECTS FOR LEATHER INDUSTRY

5.1 Introduction

The post liberalization era has opened up a plethora of opportunities for the Indian leather
industry. Along with China and Vietnam, India stands to gain a bigger share of global market.
Since global players are looking at new sourcing options for their trade in leather products.
Leading brands from the US and Europe, are planning to source leather and leather products
from India The Hindu Business Line, February 04, 2005). Global players who participated at the
India International Leather Fair, 2005, emphasized on India as sourcing destination for their trade
in leather products.

The domestic producers have also realized the opportunities ahead. In fact, almost every player
in the organized sector is on an expansion spree, and many are doubling capacities.

Currently India has a share of nearly 2.3 per cent i.e. 2 billion in the global trade of leather and
leather products of nearly US $ 88 billion. Moreover, India has significant cost advantages in
terms of labour and raw materials in comparison to the other developed countries which are
evident from the interest shown by the global players as mentioned above. Taking the current
meager share in global trade and the cost advantages into account it may be said that Indian
leather industry has a significant potential for higher share in global trade.

In addition to the global market, Indian leather industry is yet to capture the existing untapped
potential in the domestic market. India has a large and growing consumer class (annual income >
US$ 449), estimated to constitute nearly 90 million households by 2006 - 07, having a
Compound Annual Growth Rate (CAGR) around 12%. Global players in the leather business,
big or small are today focusing increasingly on India's domestic market which is already,
witnessing numerous developments. Not only quantity-wise but also quality wise there has been
significant development in the Indian leather sector: The number of people within the country
who are today ready to buy high priced shoes, in the range of US $ 30 to US $ 45 a pair, has
gone up significantly. Besides, the retail revolution is also boosting availability of goods, and the
market for branded footwear (www.tdctrade.com (2006) International Market News, May).

Hence, looking at the global trade scenario and domestic demand it may be said that the Indian
leather industry has the potential to grow leaps and bounds in the future years to come. And
hence it has an enormous potential for offering huge employment opportunity particularly in
rural and semi-urban areas. It is estimated that the potential for employment across all skills to be

LIII
in the tune of semi-skilled and unskilled labourers - 92%; technical supervisory, shop floor - 7%;
entrepreneurs, senior managers and technologists - 1% (CII-2006).

However, the extent to which the growth potentials of Indian leather industry can be realized
depends its competitive strength vis-a –vis its competitors. Otherwise, the absence of required
competitive strength in the era of globalization will turn a producing economy into a consuming
one only.

5.2 Competitive Strengths of Indian Leather Industry

The perception about growth potential of Indian leather industry draws its inspiration from
various sources constituting the strength of the industry. Some of the important ones could be the
followings.

Raw Material Source: Fortunately, the industry has access to one of the cheapest
and abundant source of raw material. The livestock is the raw material for the
leather industries. Cattle, buffaloes, goat and sheep are the four live stock
species which provide the basic source of raw materials for the leather industry.
As per the latest live stock census i.e. 17 th live stocks census of India-2003.
India has 194 million cattle, 70 million buffaloes, 95 million goats and 48 million
sheep population. Also, India ranks first among major livestock holding
countries in the world.

In fact, India has the capacity to fulfill 10% of the global leather requirement 1.
Moreover, not only the country has access to abundant supply of raw materials
but also the available raw material is diverse in variety. The annual availability
of 218 million pieces of hides and skins is the main strength of the industry.
Quality wise, some of the goat/calf/sheep skins available in India are regarded
as specialty products commanding a good market. Thus, the rich endowment of
raw material for the production of leather puts the country on a competitive
footing.

Availability of Labour: Along with the rich endowment of raw materials the industry
has also access to large supply of labour. Along with the large supply of labour,
the industry has access to abundant of traditional skills in tanning, finishing and
manufacturing downstream products. Thus, the large supply of skilled labour
which has resulted in relatively low wage rate certainly puts the industry in a
cost advantageous position vis-à-vis its competitors.

R & D facilities: Over the years through government support the industry has been
able to develop its R & D facilities considerably. Though there is yet much to be

Shobha Mathur, “Moving up the value chain,” Industrial Economist, February 15, 2005

LIV
 done in order to meet the challenges of globalization, the industry has
established a sound base for the same.

Apart from the above discussion on the competitive strengths of Indian leather
industry it is essential to have a brief look at the estimated picture of India’s
export competitiveness in leather and leather products.

5.3 Indian Leather Industry: Constraints

Despite the fact that Indian leather industry has comparative advantage owing to factors like
abundance of raw material, cheap source of labour, traditional skills, R&D facilities etc., there is
no guarantee that it can achieve its growth potentials since it has been facing several hurdles.
Some of the hurdles could be listed as follows.

Firstly, on the quality front, there continues to be acute shortage of good quality finished leather.
As a result the industry is dependent on import from china and other countries. Lack of adequate
product quality adversely egested India exports complement appreciation of rupee.

Secondly, on the technology front, most of the existing tanneries use outdated technology which
inhibits them from producing good quality leather in spite of access to quality raw materials such
as hides and skins. The tanneries require high doses of capital investment in order to improve the
existing technology so that Quality raw material could be produced and supplied to leather
manufacturing units.

Thirdly, in recent years the leather industry across the globe has been subjected to stringent
pollution control norms due to growing environmental concerns. Adhering to pollution control
norms helps them to access better market and lower tax regimes. But unfortunately, the pollution
control measures adopted for a large segment of Indian leather sector has been found to be in
adequate which ultimately erode their competitive advantage. In fact, in India in recent years a
number of tanneries have been closed on environmental considerations.

Since the Leather and leather products sector especially the tanneries are facing a
lot of problems in terms of Environmental norms, there is an urgent need for
modernizing the existing ones and also setting up new common effluent treatment
plants at various leather industry clusters as per international standards.

LV
The Tannery Modernization Scheme of the Government of India provides investment
grants for enabling the small and medium enterprises to readjust quickly to the
changed circumstances of WTO regime. Tanneries in China and other major
competing countries have invested significant amounts of funds in large tanneries.

Suitable measures to attract large FDIs and JVs in leather sector from potential
investors from abroad would help in meeting the additional capital requirement of
the sector.

Fourthly, from the financial point of view, since the industry has been dominated by small and
tiny producers, the availability of finance and cost of capital turns out to be a major constraint.

Fifthly, from a planning perspective, at the government level there is no clear cut road map for
the Indian leather industry to achieve its potentials. Moreover, not only there exist lacuna at the
planning and policy level but also the sector suffers from weak statistical reporting system. The
Council for Leather Exports (CLE) markets the products abroad and maintains the export figures
and other associated functions for exports. But the domestic sales, production and statistics of the
unorganized sector producing leather and leather products are not available adequately. This
hinders in taking a holistic view of the sector. As a result, the assessment of future potential
based on forecasting tends to be far from reality.

Finally, on the global competitiveness front Indian leather sector is much behind that of its
competitors. In fact, all the aforesaid obstacles directly or indirectly but adversely affect the
productivity and competitiveness of Indian leather industries in comparisons to its competitors
such as China, Indonesia, Thailand, Vietnam and East European countries. As a result India has a
very low share in the aggregate global trade in leather in comparison to its major competitor i.e.
China. For example, India has a less than 3% share in the global trade in leather compared to
China’s 20%. As regards to competition emanating from these countries, immediate requirement
is to make available quality raw material to Indian leather Manufacturing Units. Apart, from that
the present level of technology adopted by Tanneries and manufacturing units need urgent
upgradation.

In fact, not only the leather industry in general, but also the Indian footwear component industry
which is the pride of India in terms of its contribution to total leather exports is also facing stiff
competition from China in a number of shoe components - cellulose insole fabrics, coated,
impregnated fabrics and interlinings, where the price of the imported materials is between 40%
and 50% lower than the indigenously produced materials. Components worth US $ 35 million
were imported into the country last year, and Indian Footwear Component Manufacturer
Association (IFCOMA) expects a 100% increase in imports in the component area from China in
the current fiscal.

LVI
Along with the lack of competitiveness the size of the Indian footwear segment appears to be too
small in comparison to that of China. This is evident from the fact that India's share of the global
footwear imports is 1.5%, as against China's share of 14%.

Indian Shoe Federation, a body representing footwear export views that "China has a very big
footwear industry, and there is no way we can compete with China. In the low cost products,
orders cannot come to India, not just because of the price, but also because we do not have
factories that can undertake such huge orders."

This is precisely because of the fact that India's footwear manufacturing, even today
is concentrated in the unorganized and small scale sector. In fact, about 85% of
footwear production in India is still in tiny, cottage and small scale sector (Mani
Almal, President – IFCOMA, http://www.ifcoma.org/about/message.asp). However, in
the footwear business if at all India has some competitive advantages in the global
scenario; it is in the mid price segments. But here also, we are facing competition
from Vietnam.

The major reason for the low scale of operation in the leather industry in general and in the
footwear segment in particular could be lack of investments in the sector. Over the last 20 years
china has attracted more than 10 times of investment that India has attracted. This is precisely
because of the fact that for a long time the sector almost in its entirety was in the SSI list. Only
recently, i.e. since 2001 it has been freed from the SSI clutch. And in the absence of appropriate
regulatory environment it takes more than the required time for capacities to be enhanced.

Thus, the above discussion suggests that the leather industry in India is constrained by several
obstacles in its progress towards achievement of potential growth in the future years. But,
certainly, the obstacles do not imply that the industry cannot achieve its potential growth because
along with its obstacles it has also a great deal of positive strengths as discussed earlier. Hence,
the success on the growth front will definitely depend on the relative strengths of the positive and
negative forces faced by the industry. In fact, a SWOT analysis gives a better picture in this
regard.

5.4 SWOT Analysis

An analysis of Strength, Weakness, Opportunity and Threats helps to assess the realistic potential
of an industry. Though a discussion on all these aspects of Indian leather industry has already
been done above, the following table summaries the above discussion in the form of SWOT
analysis.
SWOT Analysis of the STRENGTHS
Indian leather industry

• High Growth
• Ready availability of
highly
• skilled and cheap manpower
• Large raw material base
Policy initiatives taken by
•
the
Government
Capability to assimilate new
technologies and handle large
•
projects
Continuous emphasis on product
development and design THREATS
upgradation
• Major part of the
industry is
unorganized
• Limited scope for
mobilizing funds
through private
placements and
public issues (many
OPPORTUNITIES businesses are family-
owned)
• Difficulty in
Rising potential in the obtaining bank loans
domestic market resulting in high cost
Growing fashion of private borrowing
consciousness WEAKNESSES • Stricter international
globally standards
Use of information •
• High competition
technologyand Lack of warehousing support from East European
decision support • from the government countries and other
software to help • International price fluctuation
eliminate the length
Asian countries
Huge labour force resulting in • Shortage of
of the production • high labour charges
cycle for different communication
• Lack of technological inputs
products Lack of strong presence in the
facilities and skills
Use of e-commerce in • global fashion market
direct marketing Unawareness of international
standards by many players
CHAPTER VI

FIELD SURVEY FINDINGS

6.1 Profile of Leather Manufacturing Units

National Productivity Council has carried out a nationwide survey across

various Leather Manufacturing units to major constraints that are hindering
the growth of leather manufacturing units in India in terms of productivity
and export competitiveness. The field survey has been carried out across
ten states in India with a view to provide sector specific policy
recommendations for enhancing productivity and export competitiveness of
the leather and leather products sector in the country.

The survey of the manufacturing units has been carried out with a structured
questionnaire (Annexure 1). The field survey tries to capture firm level information
such as turnover, employment, domestic and foreign trade, product description,
cost related information, factors affecting productivity, factors responsible for
competitiveness and specific suggestions from each of the units.

The field survey covers total 62 leather and leather products manufacturing units
spread across 10 states in India (Annexure 2).. Detailed state wise distribution of
the responding manufacturing units are given in table 6.1.

ANALYSIS

8. Supply Side Analysis

8.1 Quick Facts About Indian Leather Market
 India is the country with largest livestock, holding 21 percent large animals and 11percent small animals.
 A source for 10percent global leather requirements.
 Annual production value over USD 4 billion.
 Annual export value over USD 2 billion.
 Export growth CAGR 8.20percent (2000-04).
 About 2.50 million workforces (30percent women).
 Promising technology inflow and Foreign Direct Investment
 Top priority to occupational safety and work environment
 Enormous potential for future growth (domestic as well as export)
 i. Sources of Production of Leather
Name of the State Locations
Andhra Pradesh Hyderabad, Guntur, Vijayawada, Rajamundry, Vizianagaram
Bihar Ranchi, Muzzafarpur, Biharishariff, Patna, Dharbhang Gaya
Gujarat Ahmedabad, Sarvakundala, Junnagadh, Rajkot, Bharuch, Surat, Baroda
Jammu & Kashmir Srinagar, Anantanag, Jammu
Kerala Trivandrlun, Trichur, Quilon, Calicut, Emakulam
Madhya Pradesh Bhopal, Indore, Gwalior, Jabalpur
Maharastra Bombay, Sholapur, Kolhapur
Rajasthan Jaipur
Tamil Nadu Timchi, Madras
Uttar Pradesh Kanpur
West Bengal Calcutta
Assam Guwahati
Meghalaya Shillong
Karnataka Bangalore, Belgaum
Delhi Delhi
Punjab Jalandhar, Amritsar
Orissa Cuttak, Berhampur

I. Important Hubs for Leather Production in India

 Source: http://ibef.org

Livestock
The total number of live stock including Buffalos, Sheep, Goats, Pigs, Horses and Ponies, Mules, Donkeys, Camel,
Yaks and Mithun available as on 2003 in India were 485 million. The value of output of the Livestock was worth INR
24.33 billion.

8.2 Market Size

The Indian leather exports are targeted to grow from the present size of USD 2.4 billion to over USD 5billion by
2010.

ii. Category-wise Leather Producing Firms

Name of the Category Number of firms
Barcodes, Stickers & Labels 406
Fashion And Designer Bags 614
Finished Leather 600
 Footwear, Shoes, Components & Accessories 895
Horse & Animal Clothings and Accessories 97
Leather Bags, Purses, Wallets & Cases 1024
Leather Chemicals 103
Leather Diaries, Journals, Notebooks & Other Leather Stationery Items 67
Leather Garments 528
Leather Goods & Accessories 1524
Leather Laces, Cords, Threads, Straps & Other Leather Craft Supplies 43
Merchant Traders 243
Miscellaneous Garment, Textile & Leather Accessories 1577
Threads, Laces, Pads, Linings & Other Sewing Accessories 445

8166
Total number of firms

Source: http://dir.indiamart.com

Estimated Production Capacity of the Indian Leather Industry

iii. Leather Production by Category

Product Capacity (million pieces per annum)
Leather
Hides 65
Skins 170
Leather Products
Leather Footwear 909
Leather Shoe uppers 100
Non-leather Footwear 1056
Leather Garments 16
Leather Goods 63
Industrial Gloves 52
Saddlery 0.10

Source: http://www.leatherindia.org

8.3 Performance of Leather Exports in the Past

Export of leather and leather manufactures recorded a marginal decline of 1.0percent during April-November,
2005. The value of export decreased to INR 6812 0 million from INR 6876 0 million during the corresponding period
of the previous year. While exports of leather manufactures registered a decline of 6.9percent, exports of Leather
Footwear increased by 11.0percent in 2004-05.
Exports by Product Category
II. Breakup of Total Indian Leather Exports in 2005 - 06
 iv. Value of Indian Leather Products Exported During 2005 – 06
(Figures in million USD)

APR-MAR APR-MAR Percentage

CATEGORY
2004 - 05 2005 - 06 Variation
Finished Leather 607.73 606.06 -0.28percent
Leather Footwear 657.78 786.76 19.61percent
Footwear Components 179.21 179.04 -0.10percent
Leather Garments 329.44 328.44 -0.30percent
Leather Goods 585.72 649.14 10.83percent
Saddlery and Harness 61.71 76.40 23.81percent
Non – Leather Footwear 73.78 68.75 -6.82percent
TOTAL 2495.37 2694.59 7.98percent

Source: http://www.leatherindia.org

Looking at the Indian exports of various product categories to the world in the recent past, there is no doubt with
the fact that there has been some continual growth in the volumes of leather goods. And there has been
consistency in the share of Finished Leather, Leather Footwear and Non-Leather Footwear in the total exports has
been consistent.
III. Value of Leather and Leather Products Exported During 1999 - 2005
 Derived: http://www.leatherindia.org

Indian Exports by Geographic Locations

v. Some of the Top Destinations Including Canada for Indian Leather Exports
(Figures in million USD)
COUNTRY 1999- 2000 2000- 01 2001- 02 2002-03 2003-04 2004-05
USA 258.24 342.78 286.89 246.44 251.58 279.70
Germany 293.59 307.17 304.46 272.53 329.82 336.69
UK 266.29 270.09 248.89 240.96 250.65 299.21
Italy 165.47 241.07 263.11 255.92 285.02 242.60
Spain 66.72 100.75 101.30 110.56 161.23 169.21
Hong Kong 55.22 98.32 121.43 165.70 226.97 236.52
France 84.36 90.68 89.72 88.43 109.82 132.73
Netherlands 44.17 55.56 60.50 50.95 57.75 63.32
Canada 21.42 26.66 27.81 24.81 25.59 28.19
Others 94.37 122.48 132.78 131.34 179.55 209.30
TOTAL 1604.35 1963.5 1936.4 1875.21 2216.45 2379

Looking at the Indian leather exports to various geographies, we can make out that Germany, US and UK have been
biggest markets for leather exports to it. In the year 2005, US have occupied third position in terms of volumes of
world leather exports from India and Canada occupies 9 th position.

India’s Leather Imports

India is not only an exporter of leather but also an active importer of raw and processed leather.
vi. Leather Imports by India
 (Figures in million USD)

Apr – Mar Apr – Mar

Commodity Percentage Growth
2004 – 05 2005 – 06
Raw Hides and Skin 50.21 58.08 15.66percent
Leather 212.70 232.41 9.27percent
TOTAL 262.91 290.49 10.49percent
Source: http://commerce.nic.in

8.4 Trade with North America

Here we consider the volumes of leather exports to North America and its share in the total world exports from
India. The figures show that US had a considerable share in Leather Footwear exports and comparatively higher
share in Leather category as well. In Raw Hides and Skins North American region had a meager share in 2005.

vii. Exports of Broad Categories of Leather to USA and Canada from India
(Figures in million USD)
Product Category Total
Period USA Canada
Exports
FY: 2004-05 12.72 1.70 607.73
FY: 2005-06 11.82 1.32 606.06
Share in category exports in 2005-
Leather 1.95percent 0.22percent 100percent
06
Percentage change during last
-7.05percent -22.67percent -0.28percent
two years
Leather Footwear FY: 2004-05 93.18 7.70 657.78
FY: 2005-06 119.17 9.81 786.76
Share in category exports in 2005-15.15percent 1.25percent 100percent
06
 Percentage change during last
27.89percent 27.35percent 19.61percent
two years
FY: 2004-05 1.54 1.30 179.21
FY: 2005-06 1.89 1.45 179.04
Footwear Share in category exports in 2005-
Component 1.06percent 0.81percent 100percent
06
Percentage change during last
22.93percent 12.26percent -0.10percent
two years
FY: 2004-05 0.87 0.08 50.21
Raw Hides
& FY: 2005-06 1.86 0.07 58.08
Skins Percentage change during last
113.23percent -18.76percent 15.66percent
two years

8.5 Competitive Scenario

India’s Ranking in the World Leather Exports
India stands 8th in the world’s exports, considering its value of leather exports as a share of world’s total Leather
exports (supplies)
viii. Top 10 Exporters of Leather as a Share of the World’s Exports
Country 2000 2001 2002 2003 2004
CHINA (%) 18.78 19.50 21.57 22.46 23.44
ITALY (%) 16.79 17.42 17.27 16.79 16.85
HONG KONG (%) 13.82 12.47 12.17 11.20 11.12
FRANCE (%) 3.45 3.61 3.71 3.91 4.14
GERMANY (%) 3.22 3.42 3.89 3.75 3.96
BRAZIL (%) 3.32 3.47 3.42 3.24 3.61
SPAIN (%) 3.36 3.51 3.75 3.50 3.36
INDIA (%) 2.76 2.61 2.51 2.57 2.61
USA (%) 3.01 2.72 2.51 2.28 2.55
BELGIUM (%) 2.09 2.56 2.75 2.44 2.39
TOTAL EXPORTS 73163.7 75343.7 74920.3 85650.0 91586.8
(Figures in million USD)

Derived from: http://www.leatherindia.org

India stands 4th, when considered its value of Leather exports as a share of world’s total Leather imports (demand).
ix. Top 10 exporters of Leather as a Share of the World’s Imports
(Figures in million USD)
Country 2000 2001 2002 2003 2004
CHINA (%) 17.77 18.23 19.73 21.42 21.99
ITALY (%) 15.89 16.28 15.80 16.0 15.81
BRAZIL (%) 3.14 3.25 3.13 3.09 3.39
INDIA (%) 2.54 2.40 2.29 2.47 2.44
ROMANIA (%) 1.09 1.31 1.55 1.74 1.71
KOREA REP. (%) 3.19 2.68 2.23 1.81 1.63
 Derived from: http://www.leatherindia.org

India’s Share in the Global Imports of Leather Products

India’s shares in the world-wide imports of various leather product categories

are as follows:
x. India’s Share in the Broad Categories of Global Leather Imports
CAGR
Category Details 1999 2000 2001 2002 2003 previous
5 years

W.I 12789.88 14965.69 16197.23 15882.95 17052.57 5.58

Leather
% 1.88 5 % 2.55 % 2.84 % 3.20 % 3.26 15.99

W.I 26901.92 27598.13 28908.00 30600.23 33297.17 4.53

Leather
Footwear
% 1.40 % 1.38 % 1.37 % 1.38 % 1.66 % 11.54

W.I 4537.86 4446.66 4598.18 4374.37 4612.19 -0.02

Footwear
Components
% 4.74 % 5.35 % 5.09 % 4.00 % 3.50 % -7.47

W.I 3162.00 4457.92 4771.19 4223.19 4131.86 4.70

Leather
Garments
% 10.98 % 10.33 % 7.94 % 6.44 % 7.29 % -4.39

W.I 5366.96 5862.81 6173.66 6601.73 7412.44 7.01

Leather Goods
% 5.19 % 5.86 % 5.21 % 5.08 % 5.44 % 5.31

W.I 1336.72 1391.41 1358.07 1364.58 1470.07 -0.36

Leather Gloves
% 7.32 % 6.94 % 6.31 % 6.60 % 9.25 % 7.61

W.I 416.60 447.84 464.07 497.99 593.81 9.40

Saddlery &
Harness
% 8.19 % 9.53 % 7.68 % 8.77 % 8.88 % 10.02

W.I 54511.97 59170.47 62470.42 63545.05 68570.14 4.61

TOTAL
% 2.92 % 3.29 % 3.06 % 2.91 % 3.15 % 5.72
[W.I – World Imports (million USD)] [percent - India’s exports as a percentage of W.I]

8.6 Exports Promotion Measure for Leather Industry in India

As a part of the promoting measures of Leather and Footwear exports, following initiatives have been announced
by ministry of commerce in the 2006- 2009 Foreign Trade Policy.
Leather and Footwear
 Duty free import entitlement of specified items shall be 5percent of FOB value of exports during the
preceding financial year.
 The duty free entitlement for the import of trimmings, embellishments and footwear components for
footwear (leather as well as synthetic), gloves, travel bags and handbags shall be 3percent of FOB value of
exports of the previous financial year. The entitlement shall also cover packing material, such as printed
and non printed shoeboxes, small cartons made of wood, tin or plastic materials for packing footwear.
 Machinery and equipment for Effluent Treatment Plants shall be exempt from basic customs duty.
 Re-export of unsuitable imported materials such as raw hides & skins and wet blue leathers is permitted.
 CVD (Countervailing Duty) is exempted on lining and interlining material notified at S.No 168 of Customs
Notification No 21/2002 dated 01.03.2002.
 CVD is exempted on raw, tanned and dressed fur skins falling under Chapter 43 of ITC (HS).
 Approval for 117 (includes multi-product Zones) new SEZ s have been already given, these SEZs would
work with private sector coordination. Out of those 117 SEZs , 6 SEZs are already operational.
Problem Areas in Export Promotion Measures
 No separate SEZ for promotion of Leather Exports
 Neither SEZs nor EOU are designed for the development of leather industry

9. Demand Side Analysis

9.1 North America’s Total Leather Imports

xi. Value of the Leather Apparel Imported by the U.S. in the Recent Past
(In million USD)

Country 2000 2001 2002 2003 2004 2005

China 1,193.6 1,258.2 1,081. 1,061.3 916.9 801.4
Italy 86.3 108.2 88.5 86.2 75.3 67.3
India 128.8 129.4 77.3 69.7 68.8 50.1
Pakistan 70.3 66.6 67.3 59.9 47.1 41.1
Turkey 22.7 24.8 21.7 21.4 13.0 13.8
France 13.7 14.2 13.0 11.9 10.4 9.1
Canada 23.4 19.2 15.6 13.1 11.3 9.1
Hong Kong 12.0 15.7 11.1 12.0 10.2 7.0
Korea 67.6 42.4 28.4 169 11.8 5.2
Indonesia 71.8 71.1 45.1 9.9 7.1 4.1
Switzerland 0.6 1.2 0.1 0.2 2.8 3.5
Mexico 5.5 4.1 3.6 3.1 3.8 3.3
Romania 0.5 1.3 1.8 1.0 1.2 2.0
Poland 1.1 2.3 1.4 1.0 1.8 1.6
Germany 2.5 2.1 1.5 1.5 1.2 1.5
Spain 2.5 2.5 2.3 2.0 1.6 1.5
United Kingdom 2.9 2.5 2.7 2.7 1.6 1.3
Slovenia 1.1 2.6 0.9 1.6 1.3 1.1
Ukraine 0.02 0.05 0.1 0.1 0.6 0.9
Philippines 11.4 4.9 1.7 0.9 0.8 0.7
Uruguay 0.8 0.7 0.6 0.4 0.7 0.6
Sri Lanka 0.1 0.03 0 0.1 0.7 0.5
Argentina 1.3 0.3 0.6 0.6 0.5 0.4
Brazil 0.3 0.1 0.1 0.3 0.6 0.3
Tunisia 0.01 0.002 0.09 0.4 0.3 0.3
Others 7.4 7.6 6.6 5.1 5.1 2.8
TOTAL 1,729.4 1,783.1 1,474.9 1,384.6 1,197.6 1,031.6
Source: http://www.ita.doc.gov

The leather imports by both U.S. and Canada over the last few years are as
follows:
xii. Imports of Leather by the North America in the Recent Past
Country 2000 2001 2002 2003 2004
USA 20701.7 20964.1 20930.4 21155.5 22386.4
CANADA 1537.2 1537.2 1571.4 1653.5 1804.6
TOTAL 77331.2 80602.4 81895.6 89825.0 97606.1
(In million USD)
 Source: http://commerce.nic.in

xiii. Value of the Leather Apparel Imports by Canada in the Recent Past
Country 2001 2002 2003 2004 2005
China 904.2 948.1 947.6 1,016.2 1,112.4
Italy 274.1 279.2 231.4 201.8 166.4
US 147.8 139.7 113.0 113.7 116.8
Brazil 83.7 99.5 102.7 121.0 110.5
Vietnam 43.6 60.6 66.1 82.1 104.5
Mexico 12.5 11.1 37.4 48.6 49.3
India 33.9 33.3 30.3 31.0 34.4
France 18.2 21.5 22.1 27.1 24.3
Thailand 27.2 30.6 28.2 24.0 23.4
Indonesia 48.2 48.3 36.5 23.9 23.2
OTHERS 301.5 304.9 257.4 244.2 219.4
TOTAL 1,894.8 1,976.9 1,872.6 1,933.7 1,984.8
(In million USD)
Source: http://strategis.ic.gc.ca

In case of the U.S., Canada is the top 7 th source for the imports of Leather products where as in case of Canada, U.S.
occupies 3rd position as the most preferred source for Leather imports. The volumes of Leather products exported
by India to Canada are comparatively far less than what it exports to the U.S.

U.S. Imports of Leather Products by Category

xiv. Value of the Leather Imports by the U.S. in the Recent Past
(In million USD)

Category 2000 2001 2002 2003 2004

Finished Leather 4,647.0 4,138.8 3,861.2 3,484.3 3,798.3
Leather Footwear 15,664.1 16,013.3 16,164.2 16,416.3 17,405.8
Footwear Components 9,793.5 10,147.6 10,669.1 11,008.7 11,601.6
Leather Garments 9,569.6 9,890.1 9,113.3 9,102.0 9,016.5
Leather Goods 362.0 379.9 447.6 535.0 581.4
Leather Accessories 595.3 636.1 692.6 675.7 765.7
Raw Hide/Skin 205.5 196.3 173.2 159.3 184.0
TOTAL 40,837.0 41,402.2 41,121.1 41,381.2 43,353.4

Derived from: http://www.intracen.org

Canadian Imports of Leather Products by Category
xv. Value of the Leather Imports by Canada in the Recent Past
(In million USD)

Category 2000 2001 2002 2003 2004

Finished Leather 1,081.3 969.5 929.6 905.0 940.6
Leather Footwear 1,000.1 1,019.3 1,063.6 1,113.5 1,223.4
Footwear Components 567.3 574.2 609.1 652.0 715.5
Leather Garments 692.8 723.1 719.9 764.6 832.2
Leather Goods 39.0 39.0 48.4 118.2 150.0
Leather Accessories 64.3 63.6 63.8 70.1 78.0
Raw Hide/Skin 113.4 107.0 109.4 104.1 95.7
TOTAL 3,558.1 3,495.7 3,543.9 3,727.6 4,035.3

Derived from: http://www.intracen.org

9.2 U.S. Trade Policy on Footwear and Leather Products

Trade and Tariffs

The footwear, leather, and leather goods sector is defined by footwear, its components, leather
goods, and travel goods. Footwear, leather, and leather goods accounted for approximately
D434,000 or 0.12 percent of total U.S. non-textile industrial exports to Oman in 2003. Top U.S.
exports in the sector are metal toecap footwear and travel cases.
Oman applies a 5 percent tariff on footwear, leather, and travel goods that enter the country.
Oman did not export any footwear, leather, or travel goods to the United States in 2003.

The United States applies tariffs of 0 to 58 percent on products in this sector, with the highest
effective tariffs on rubber footwear. The average applied tariff for footwear, leather and leather
goods is 16 percent.

Tariff Elimination
The U.S.-Oman FTA will eliminate all industrial tariffs in the United States and Oman within 10
years of implementation. Tariffs will be phased out according to three tariff elimination
categories: 1) immediate elimination, 2) equal cuts over 5 years, and 3) equal cuts over 10 years

Footwear

Currently, the United States grants 14 percent of footwear products duty-free treatment. Upon
implementation of the agreement, the United States will grant duty-free treatment for an
additional 71 percent of footwear products from Oman. The United States will phase out the
remaining tariffs on seventeen rubber footwear products over the course of ten years Oman
currently applies a 5 percent tariff on 100 percent of footwear products. Upon implementation of
the agreement Oman will grant 100 percent of imports of footwear products from the United
States duty free treatment immediately.

GAP ANALYSIS

10. Demand – Supply Gap

10.1 Calculation of the Net Imports of the North America
xvi. Net Imports of Leather Products in North America
(Figures in million USD)

Particulars Item 2001 2002 2003 2004 2005

Total Imports of US A 1,783.1 1,474.9 1,384.6 1,197.6 1,031.6
Total Imports of Canada B 1,894.8 1,976.9 1,872.6 1,933.7 1,984.8
C 19.2 15.6 13.1 11.3 9.1
Imports from Canada by US

Imports from US by Canada D

147.8 139.7 113.0 113.7 116.8
Net Imports of US E= (A-C) 1,763.9 1,459.3 1,371.5 1,186.3 1,022.5
Net Imports of Canada F= (B-D) 1,635.3 1,335.2 1,271.6 1,083.9 914.8
Net Imports E+F 3,399.2 2,794.5 2,643.1 2,270.2 1,937.3

10.2 Calculation of Net Exports from India to North America

xvii. Net Imports of Leather Products in North America
 (Figures in million USD

Particulars 2000 2001 2002 2003 2004 2005

Total Exports to US 258.24 342.78 286.89 246.44 251.58 279.70
Total Exports to Canada 21.42 26.66 27.81 24.81 25.59 28.19
Net Exports 279.66 369.44 314.7 271.25 277.17 307.89

10.3 Demand -Supply Gap for Leather Trade with the USA
Citing at the chart below, we can observe that the Indian Leather exports have stagnated over last five years.
However, the share of India in the total US Leather imports has increased over the last five years. But it is also
obvious that the demand for leather imports has been coming down for US in the analyzed period. In 2005, Indian
Exports would form almost a quarter of total US Imports in comparison to little over 20percent of total US Leather
imports in 2001.

IV. Demand-Supply Gap with USA

10.4 Demand -Supply Gap for Leather Trade with Canada

Though the picture is self illustrative of the obvious point, It could be said that Canada has a huge potential for
Indian Leather exports. So far the Indian exports have been around 1-2percent of the total Canadian Imports.
Though the demand is being met by other exporting countries like China and Italy, India has to strategies and create
attractive trade situation for Canada.
V. Demand-Supply Gap with Canada
10.5 Demand -Supply Gap for Indian Leather Trade with North
America
The demand for Leather Imports in the whole North American region (UAS and Canada) has come down from close
to USD 3500 million in 2001 to close to USD 2000 million by 2005. The share of Indian exports to North American
region had been almost stagnated over the last 5 years. So the share of Indian exports has increase from close to
14percent in 2001 to around 17percent by 2005.

However, the Indian Leather Exports across the world had been gradually increasing in the study period. There had
always been negative correlation between total Indian Leather Exports and the total North American Importing
trends.

VI. Demand-Supply Gap with North America

 CHAPTER VII

RECOMMENDATIONS

Since the study was undertaken with limited budget the limited resources available
in terms of finance, the unit level data coverage was undertaken with a limited
scope and coverage. However, efforts have been made to minimize such constraints
through analyzing various data sources available to arrive at broad
recommendations for the development of the sector. The recommendation have
been formulated which are implementable in nature.

Quality of Product

There is an urgent need to improve product quality and efforts should be made to promote
quality systems among the leather and leather products manufacturers to ensure sustained
product quality. Towards this emphasis should be placed on strengthening improved design,
development and prototyping. Quality Council of India and BIS can provide sufficient
support for identifying and establishing quality standards for the leather industry.

Branding Requirements

Currently large numbers of SME units are producing quality leather products but are unable to
realize the advantage due to lack of branding. Goal through its developmental agencies
should promote branding of quality products produced by large number of small
manufactures. An incentive scheme in terms of product branding may be introduced for an
initial period of five years. Central Leather Research Institute along with Ministry of
Commerce & Industry, Industry Associations and NMCC can evolve schemes to address
this critical issue.

Niche Marketing

Since the traditional exports markets for Indian leather products such as USA, EU etc. are facing
stiff competition from other developing countries, the exporters need to focus on niche
market. Industries should focus on woman’s fashion footwear, where India has design
advantage and cost competitive as compared to other exporting countries mainly East
European countries. National Institute of Fashion Technology, National Institute of Design
along with NMCC can evolve appropriate action plans to address this issue.
Tannery Modernization

On the technology front, most of the existing tanneries use outdated technology which inhibits
them from producing good quality leather in spite of access to quality raw materials such as
hides and skins. The tanneries require high doses of capital investment in order to improve
the existing technology so that Quality leather could be produced and supplied to leather
manufacturing units. The Tannery Modernization Scheme of the Government of India
provides investment grants for enabling the small and medium enterprises to readjust quickly
to the changed circumstances of WTO regime. Tanneries in China and other major competing
countries have invested significant amounts of funds in large tanneries. Therefore, it is
recommended that Ministry of textiles and Ministry of Commerce & Industry need to
invigorate the existing modernization scheme and make it more acceptable.

Environmental Norms/Regulations

Various leather producing units should be encouraged and be given incentives to adopt adequate
pollution control measures. Since the Leather and leather products sector especially the
tanneries are facing a lot of problems in terms of Environmental norms, there is an urgent
need for modernizing the existing ones and also setting up new common effluent treatment
plants at various leather industry clusters as per international standards. Ministry of
Environment & Forests can act as a facilitator along with State Pollution Control Boards and
Industry associations can provide the guidelines and assistance for setting up common
effluent Treatment plants at major Leather clusters.

Cluster Development

Another area where immediate intervention is required is developing integrated leather based
product manufacturing clusters with Special Economic Zone facilities to be established, at
major producing centers such as Ambur in Vellore district in Tamil Nadu, Agra and Kanpur in
UP and Kolkatta in West Bengal. Govt. may set up manufacturing clusters for leather and
leather products on the times of SEZs. Cluster approach will ensure lower cost of raw
material as well as proper and pinpointed implementation of detailed policy package and
ensure a clear road map for the fast track growth and development of the sector. It should
also incorporate aggressive marketing plan and a coordinated time bound action plan to
realize full potential of the sector. Ministry of MSME along with NMCC can identify the
areas where Clusters development Programme need to be undertaken.

Rationalization of Duty Structure

It is essential to rationalize both the internal and external duty structure of inputs needed for the
sector. In addition to the rationalization of the duty structure schemes are needed to
encourage the existing producers of leather products for technological up gradation.
Modernization requires a heavy dose of investment for which availability of capital is a
major constraint. Since, most of the players in the leather sector are small and tiny
industries, the government should take proactive steps for easing the capital constraint.
Ministry of Commerce & Industry and Ministry of MSME along with NMCC can evolve
strategies to rationalize the duty structure of inputs.

FDI in Leather Industry

The other option could be to encourage FDI in the leather sector. In order to increase FDI in the
Indian leather sector it is essential to encourage good governance and global bench mark of
best practices and provide good infrastructure for the sector. Suitable measures to attract
large FDIs and JVs in leather sector from potential investors from abroad would help in
meeting the additional capital requirement of the sector. Ministry of Commerce & Industry
along with NMCC can organize B2B meets to facilitate and encourage Foreign investment
in the sector.

Skilled Manpower Requirement

Vocational training through ITI s, Textile Design & Management Institutions specially in the area
of Apparel Manufacturing, Quality Control and Designing needs to be encouraged so that
skilled work force is available. Leather development Institutes needs to develop and
organize training of trainers for development of workers and artisans of Leather sector. In
order to increase the availability of a large number of skilled workers and artisans, efforts
should be made to enhance the training and capacity building infrastructure in the country.
Ministry of HRD along with AICTE and Industry Associations in tandem can develop
special modules for ITIs and other educational institutions for addressing the current needs
of the sector.

Duty Drawback for Exports

leather and leather products sector being labor intensive provides employment to millions of
skilled and semiskilled labor force. The sector is adversely affected by the current global
meltdown and it is essential to provide a policy package in terms of reduction of taxes,
credits at lower rates as well as duty drawback for exporters. Ministry of Commerce &
Industry along with NMCC and Industry Associations can work out appropriate stimulus
packages for supporting the sector.

Need for Database

CONCLUSION

Findings
India accounts for 17 % of the total leather imports of USA and Canada together in 2005. The demand for Leather
Imports in the whole North American region (USA and Canada) has come down from close to USD 3500 million in
2001 to close to USD 2000 million by 2005. So the share of Indian exports has increase from close to 14percent in
2001 to around 17percent by 2005.

So This Proves Our Hypothesis That:

“India is one of the major exporters of leather and leather goods to North-American countries”.

Conclusion
So I accept the “Null Hypothesis” and conclude that India is one of the major exporters of leather and leather
goods to North-American countries.

Other Conclusions
1) The key markets for leather products exported from India are Germany, UK, USA and Italy, which
together consume about 49 per cent of Indian exports.

2) In terms of product category, leather footwear, finished leather and leather goods together
account for over 75 per cent of exports.

3) India's export growth rate is 6.88percent during last five years.

4) U.S. imports of apparel increased in 2004, reflecting a continued trend by retailers and apparel
companies increasingly to source from lower-cost offshore providers and the growth in the U.S. economy, which
boosted consumer confidence and disposable income.

5) China is the largest foreign' supplier of textiles, apparel, and footwear, accounting for 20 percent
of U.S. textile and apparel imports and 69 percent of U.S. footwear imports in 2004 by value. U.S. imports of
textiles and apparel from China rose significantly in 2004, particularly in articles for which it became eligible for
quota elimination in 2002.

6) Consumer spending on footwear rose in 2004 by 7 percent, and the average price of U.S.
footwear continued to fall as lower-price casual shoes contributed to ongoing price deflation.
Annexure
Demographic Details:

Name:

Address:

Age:

Occupation:

Q1. Are you employed with an export firm?

Yes [ ] No [ ]

Q2. Do you have an export business of your own?

Yes [ ] No [ ]

Q3. Do you deal in leather products?

Yes [ ] No [ ]

Q4. Rank the strengths of the Indian Leather Industry:

Raw material availability [ ]

Manpower [ ]

Low Labour cost [ ]

Non quota item [ ]

Q5. What kind of leather products do you deal in?

Footwear [ ]

garments [ ]

Handbags /Purses [ ]

Luggage/Flat products [ ]

Accessories [ ]

Others [ ]
 If, you deal in Leather garments then please continue.

Q6. List the kind of leather garments do you export?

Q7. How many pieces do you manufacture per day?

20-30 [ ]

40-50 [ ]

50-60 [ ]

60 and above. [ ]

Q8. Do you have an inhouse tannery ?

Yes [ ] No [ ]

Q9. I believe that a leather garment is just worn as a symbol of status ?

Strongly agree [ ]

Agree [ ]

Neutral [ ]

Disagree [ ]

Strongly Disagree [ ]

Q10. Do you export leather garments to the North America?

Yes [ ] No [ ]

Q11. Briefly state the reasons for choosing North America?

 BIBLIOGRAPHY

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