Supportive measures needed

Print edition : July 13, 2012

Rafeeq Ahmed: India has advantages in raw material availability and other factors.-V.V. KRISHNAN

Interview with Rafeeq Ahmed, president of the FIEO.

Rafeeq Ahmed is the president of the Federation of Indian Export Promotion Organisations (FIEO). He is a leading leather and leather footwear exporter with a turnover of $170 million. He spoke to Frontline from his Ramapuram office in Chennai. Excerpts from the interview:

How did Indian leather exports do in fiscal 2011-12 when the country's overall export set a new milestone by compassing $303 billion?

Leather exports last fiscal were more than expected. We were chasing a target of $4.2 billion with a growth rate of about 12-14 per cent. To our surprise, we achieved $4.7 billion and a growth rate of 21-22 per cent. This was mainly thanks to a boom in leather garments in the overseas markets, with other leather products also showing a marginal increase. But I cannot say the same for the current year because the demand is a little less in Europe. The orders coming in today are 15-16 per cent less than what it was a year ago.

Though the government has fixed the export target up from $9 billion this year to $14 billion by the end of the Twelfth Plan (2016-17), we told the authorities that this was not possible unless we had massive capacity addition. Our share in the global leather trade is 3 per cent, whereas China has one-fifth of the global share.

In order to increase our share, I had suggested to the Commerce Ministry in the pre-Budget meeting of 2011-12 to take up mega leather clusters. The notification for this was made in March 2012. They have allocated Rs.600 crore for this scheme. To develop one cluster of 100 acres and for the industry to come up there with all integrated infrastructure in place it will take two to three years.

With China and Indonesia emerging as high-cost centres for the industry, what is emerging as a threat to Indian leather exports is the development in Bangladesh. A lot of Chinese factories have been trying to relocate to Bangladesh, taking advantage of the latter's LDC [least developed country] zero-duty status in the overseas markets. Already two or three big Chinese companies have started building factories in Chittagong. After two to three years, they may come as a challenge to us. Still, China on its own cannot be a threat to us for at least the next few years as India has advantages in raw material availability and other factors.

What are the salient features in the Twelfth Plan for the leather sector and do you think they can help galvanise the industry on a high growth trajectory both domestically and globally?

We have asked the Ministry to continue the ongoing programmes and the extant benefits to the industry and trade. For us quality and logistics count and the matter of how quickly you turn around a product is crucial. The third is pricing, which is becoming fiercely competitive as the share of the cake gets smaller. Still, the United States and the European Union and the United Kingdom together account for 70 per cent of the world leather market, with Bangladesh, China, India, Indonesia and Pakistan vying with one another to get a share of the cake. We have sent a note from the Council for Leather Exports (CLE) to the DIPP [Department of Industrial Policy & Promotion] to take up a few leather items for negotiating for India with the ASEAN [Association of South-East Asian Nations] under the Indo-ASEAN FTA [free trade agreement] that they should reduce the tariffs to 15 per cent and within three years to 0 per cent to enable the Indian leather industry to penetrate their markets with higher volumes. Similarly, the FTA with the E.U. will be a big benefit to the Indian leather industry.

One component of pricing is the cost of making products, which includes high energy cost, low productivity of labour as compared to the Chinese, and cost of finance all of which make it very difficult to be price competitive in the global arena. It is only the supportive measures, including interest rate subvention, that help us to be competitive. The CLE has joined the National Skill Development Council, where there is a scheme to develop one million skilled workers in the leather industry in the next seven to eight years and also to improve the skills of existing workers. The CLE has contributed Rs.1 crore and the NSDC [National Skill Development Corporation] gives us a grant of Rs.6 crore and another Rs.6 crore by way of soft loan. We are now at an advanced stage of launching this programme and intend to start the programme within six months.

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