Historical Performance and Future Outlook of Indian Leather and Leather Products Exports

HISTORICAL PERFORMANCE AND FUTURE OUTLOOK OF INDIAN LEATHER AND LEATHER PRODUCTS EXPORTS

Report

Introduction

Leather Industry occupies a place of prominence in the Indian economy in view of its massive potential for employment, growth and exports. There has been increasing emphasis on its planned development, aimed at optimum utilization of available raw materials for maximizing the returns, particularly from exports. The leather industrial sector comprises of:

a) Tanneries (where raw hides and skins are converted into leather)

b) Factories transforming leather into a variety of consumer products such as footwear, garments and outerwear, and assorted leather goods such as wallets, passport cases, key chains, handbags and brief cases. Apart from the quality of raw material, the process of its conversion into leather and, later, of the design, product development and process of manufacture, of products play a key role in adding value to it.

Features of Indian leather industry:

* The Government policies on leather and leather product export started changing from 1974. Priorities were given for export of value added goods. From the year 1991 onwards only finished leather were exported and export of raw or semi-finished leather was banned;

* Many tanners started setting up factories for manufacturing leather products after 1991-92 like shoe uppers, shoes, garments and leather goods. Similarly many shoe and garment manufacturers began to seek backward linkage, by taking on lease or setting up tanneries. This is a unique development in India, a tanner becoming product maker and the product sector setting up tanneries or leasing out tanneries;

* At the same, as incentive to the exporters, the import duties on capital goods have been reduced;

* Until 2002, the leather sector was reserved for small scale sector and this may have prevented Foreign Direct Investment (FDI) in this sector. The FDI in this sector from April 2000 to January 2012, is US$ 59.6 million. This is only 0.04% of total FDI inflows and ranked at 51;

* Today the industry ranks 8th in the export trade in terms of foreign exchange earnings of the country;

* Though India is the second largest producer of footwear and leather garments in the world, India accounts for a share of close to 3% in the global leather import trade of US$ 137.96 billion (2010).

* The leather industry is an employment intensive sector, providing job to about 2.5 million people, mostly from the weaker sections of the society. Women employment is predominant in leather products sector with about 30% share.

Structure of Industry

Leather product / leather industry in India is spread over organized as well as unorganized sector dominated by the presence of family units. The small scale, cottage and artisan sectors account for over 90% of the total production.

Type of Unit Turnover

Small < Euro 2.25 Million

Medium Euro 2.25 -11.25 Million

Large Euro11.25 - 41.25 Million

HISTORICAL PERFORMANCE & FUTURE OUTLOOK:

The study is divided into 4 sections:

-Products analysis & scope

-Country analysis & scope

-Competitive analysis & scope

-Trends analysis & scope.

1). PRODUCTS ANALYSIS & SCOPE

Leather industry can be broadly divided into Leather Processing and Leather Product Industry .The flow chart elucidates the structure:

The growth rate was the highest for finished leather (14.77 per cent) followed by leather goods (13.79 per cent), leather foot wear (11.35 per cent) and foot wear components (6.3 per cent); it was the lowest for leather garments (4.8 per cent).

COUNTRY ANALYSIS:

The major markets for Indian Leather & Leather Products are Germany with a share of 12.88%, U.K. 11.20%, USA 10.81%, Hong Kong 9.19%, Italy 8.88%, France 6.01%, Spain 4.94%, Netherlands 3.75%, China 2.26%, Denmark 1.49%, UAE.3.09%, Belgium 1.78%. These 12 countries together accounts for nearly 76% of India's total leather& leather products export.

Future Scope:

Positive growth during April-August 2013: Export of leather & leather products to major markets like Germany, USA, UK, Italy, France, Spain, Russia, Canada, South Africa, Australia, Japan, Portugal and UAE have shown

Declining trend is seen in export to Belgium, China and Saudi Arabia.

Overall share of India in World export is varying between 2% and 5% over the years though the trend is generally declining with a tendency to stabilize around 2.5%. Share of Spain, Italy, Netherlands and Hong Kong are increasing over time. That of Germany and USA, our traditional customers along with Japan have declined more or less steadily. For UK France and Canada the shares are more or less stable over this period. Most significant increase is observed for Hong Kong, whereas leather export to Germany witnessed the fastest decline over the years. For 2012-13 period, exports to Russia doubled.

HISTORICAL EXPORT ANALYSIS:

Pre-reform phase:

If India's leather export would have grown at the world rate then the increase should be 185% and not merely 100% implying our incapability of taking full advantage of the buoyant world market. Moreover, in this period due to the fall of Soviet Union and massive change in the political order of the Eastern Europe our leather export lose some of its strong markets. However, due to adoption of strong and supportive domestic policy to promote product diversification and quality improvement, we gained in terms of commodity composition (71.15%) indicating a relative dominance of high- value leather manufacture in the final export basket instead of low-value semi-finished