Best foot forward

Exhibition of footwear components, accessories and finished leather goods at Ambur Trade Centre in Vellore district, Tamil Nadu, in July 2011.-D. GOPALAKRISHNAN

With India's leather exports overshooting the target of $4.2 billion in 2011-12, the fortunes of the industry appear to be on a rebound.

India's leather industry is at tipping point today. The increasing disposable income of Indians and a wider choice to make fancy but value-for-money footwear have given it a fillip. On the other hand, the demand for leather goods is not upbeat in its traditional market in rich countries. A group of exporting countries led by China, Vietnam, Indonesia, Bangladesh and Pakistan is vying for the shrinking pie by being fiercely competitive in terms of price, quality and delivery.

Still, the leather industry in India is the tenth largest manufacturing sector and one of the top 10 export earners. It has a wholesome linkage to job creation in the rural economy, with 94 per cent of the sector dominated by small and medium enterprises (SMEs). With India's leather exports putting up an unusually salutary show in fiscal 2011-12, overshooting the target of $4.2 billion, thanks to a clutch of initiatives by the authorities both for manufacture of value-added items and skill development training to workers employed in the industry, the fortunes of the industry appear to be on a rebound.

A study of the Working Group on Leather and Leather Products for the Twelfth Five-Year Plan (2012-17) reckons that the industry can build its growth story on the following strengths: rising disposable income, the low share of footwear and leather components in the overall consumption expenditure of households, the abundance of leather as a raw material, and a low-cost manufacturing base. But to cash in on the innate advantages, the industry must modernise, add capacity and upgrade technology. The Department of Industrial Policy & Promotion (DIPP), functioning under the Ministry of Commerce and Industry, has been a catalyst in creating the basic conditions for the growth of the leather industry through the India Leather Development Programme (ILDP), which was kicked off in the Tenth Plan. The programme has two sub-schemes: the Integrated Development of Leather Sector (IDLS) for the modernisation and technological upgradation of leather units; and the Infrastructure Strengthening of Leather Sector (ISLS) for providing infrastructure facilities and building capacity.

However, even as the intentions of the authorities were sound, the implementation part left a lot to be desired as was highlighted in a House Panel report tabled in Parliament in the Budget session. Analysing the Demands for Grants (2012-13) of the DIPP, the Parliamentary Standing Committee on Commerce recalled that in the 2011-12 Budget, a Plan allocation of Rs.240 crore was made for the ILDP, which was subsequently slashed to Rs.180 crore. It noted that Rs.52 crore of this was lying unspent until the beginning of March 2012.

The report particularly singled out the glacial pace of progress in completing the state-of-the-art Leather Tanning Complex in Nellore (Andhra Pradesh), which was provided Central assistance of Rs.29 crore in the Eleventh Plan (2007-12). It upbraided the department that had it been guarded while appraising the proposal of the special purpose vehicle for establishment of a leather complex at Nellore, it could have easily avoided the embarrassment of loss of time [five years] for the project.

Despite this criticism by the House Panel, the Working Group recommended the continuation of the ILDP with an enhanced outlay of Rs.3,220 crore. But the department proposed an outlay of Rs.2,420 crore; it was Rs.1,251 crore in the Eleventh Plan. The Working Group suggested the continuation of sub-schemes to provide skill development training and placement to unemployed youths and skill upgradation training to the employed ones; livelihood security and marketing support to artisans and training for traditional artisans; infrastructure-related schemes such as mega leather clusters (in place of leather parks); and environment protection. The Eleventh Plan sub-scheme Saddlery Development has been redesigned as Research & Development and Design & Development. It has also suggested a new sub-scheme envisaging the formation of a separate Council for Development of Domestic Leather Market in the name of Indian Leather Development and Promotion Council (ILDPC).

Industry circles point out that though the tanning segment has taken positive measures to adhere to the environment norms, given the exorbitant cost of zero liquid discharge (ZLD) technology, research needs to play a key role in fostering cost-effective technologies to resolve the problem of total dissolved solids (TDS) in tannery effluent. Technology ought to be developed for the preservation of hides and skins as an alternative to the extant salt-based preservation.

Twelfth Plan target

With leather export in the final year of the Eleventh Plan being estimated to cross the $4.72 billion target, the government has set an ambitious $14 billion target to be achieved by the end of the Twelfth Plan (2016-17).

This is predicated on the premise that substantial development would supervene in all core areas, namely capacity addition through modernisation and technological upgradation, human resource development, market expansion and diversification, product diversification, infrastructure development, and environment management. Though the Indian leather sector currently exports to about 70 countries, 75 per cent is to the European Union and the United States.

While the share of men's footwear in Indian leather goods exports is high, the export of ladies' and children's footwear needs to be stepped up, besides non-leather footwear. Alongside this, there is an overarching need to develop more Indian brands so as to achieve higher unit value realisation. Exporters are also worried over Chinese investors setting up production bases in Chittagong, piggybacking on Bangladesh's LDC (least developed country) status to export duty-free leather goods. In order to build a robust domestic production base and make competitive inroads into international markets, the industry wants to have in place a 5 per cent duty credit for exports to the U.S., Russia and Japan under the Market Linked Focus Product Scheme as these markets are dominant in the overall share to Indian industry. As stakes are high for the leather industry in view of its labour-intensive nature and high export-earning prospects with a dominant share of rural orientation and SMEs in the manufacturing chain, the industry is confident that the authorities will continue to safeguard its vital interests over the long haul.