Good times for Indian tanners21 March 2005
Crowded aisles, packed stands and happy faces could be seen at the last edition of the IILF held in the southern Indian city of Chennai last January. The positive mood not only reflected the current boom in the general Indian economy but also the upbeat feeling in the domestic leather industry. India is now arguably the second largest growth area for the leather sector after China. Last year exports of finished leather grew by 17% and investment in the industry from both foreign and domestic sources increased. 'The government and the private sector have both taken a comprehensive view of developing the industry. Investments are not only going into production facilities but also on infrastructure for environmental conservation', says S Audiseshiah, executive director of the Indian Council for Leather Exports (CLE). According to figures released by the CLE, exports to the US grew by 20% for the first six months of 2004 for finished leather. Spain saw imports of Indian made leather grow by 33% and France 16%. Overall exports reached US$1.1 million for the first six months and are anticipated to reach US$2.3 million for the twelve-month period ending March 2005. Indian leather is exported globally as leather or as finished leather products. Major export markets include the European Union (63%), the USA (12%), Hong Kong (10%) and Australia (1.5%). In 2003-04 exports of leather footwear increased by 21.3%, leather garments by 8.4% and leathergoods by 10.4% compared with the previous year. India is now the second largest footwear producer in the world after China. 94% of total footwear production is manufactured for the export market. India is also the third largest producer of garment leather after China and Italy, and the world's fourth largest manufacturer of leathergoods. The total annual value of the Indian leather and leather product industry is estimated at US$4 billion. Despite the positive growth, Indian made finished leather has only a 2.3% share of the total global market, which is estimated to be worth US$81 billion. Representatives from India's leading companies and associations hope to increase their share of the total world market to 4.2% by 2010. This would mean an overall increase of a further 1.9% or an extra US$1.5 billion. One of the largest assets for the Indian leather sector is its abundant source of raw materials. According to the CLE, India has 21% of the global livestock of cattle and buffalo as well as 11% of the world's population of sheep and goats. It has been estimated that India has 10% of the world's availability of raw material for leather. The estimated global leather requirement is for 2 billion sq ft. Foreign inward investment In recent years a number of foreign companies have chosen to set up strategic alliances or joint ventures in India. Prior to the IILF fair held in Chennai in January, the Italian tanning group Conceria Virginia inaugurated their new tanning joint venture with India's Forward Group. The Conceria Virginia Chennai tannery was due to begin production at the beginning of March and will have the capacity to produce 6 million sq ft of leather per year using imported raw materials. Virginia are one of a number of foreign investors expanding in India thanks to an abundant low cost workforce and incentives given by the Indian authorities. Other companies to set up in India include Mondial, Suolificio Malaspina from Italy, Fagus and Lammertz Industrial from Germany and Texon from the UK. According to the CLE, it is possible to have 100% foreign ownership of businesses in India unlike China where 51% of each enterprise remains Chinese owned. It is easy to see why low labour costs in India are attractive to foreign investors. The labour costs for an unskilled worker are typically €45 per month (US$60) and €90 for skilled workers. Booming Indian economy The leather industry in India is riding high in parallel with the overall economy. Although it remains a relatively poor nation the general trend is towards a higher number of Indian citizens who enjoy a better standard of living and, therefore, have an increased spending power. India is not in the same league as China when it comes to competing globally but it is feeling the benefits of a general increase in the standard of living for the population. The general economy in India is enjoying tremendous growth at the moment. Between 2003-2004 the national economy grew by 8.1% with the GDP estimated to be approximately US$2.9 trillion. During the same period industrial exports grew by 17% and imports by 24%. The GDP is made up from the service sector (51%), industrial sector (27%) and agriculture (22%). According to S Audiseshiah, the executive director of the CLE, India has a robust banking system and has been a good market for foreign investment. India also enjoys relatively low inflation rates, around 5%, and overall exports in 2003-04 reached US$62 billion, a growth rate of 17%. Leather complex finally opens The Kolkata leather complex was finally due to open this March following a number of delays. The Rs350 crore (US$80 million) facility is due to be home to 50 or so tanneries forming a leather cluster. The complex will host a special economic zone (SEZ), which includes access to a common effluent treatment plant. The SEZ will include tanneries and allied industries, a training centre, design studio and a leathergoods park. The CLE is assisting the government of West Bengal to showcase the project as an attractive investment destination. In addition, the government of Andhra Pradesh is setting up a tanning complex on a 100 acres of land near Nellore. The new complex is being promoted by the Leather Industries Development Corporation of Andhra Pradesh Limited (LIDCAP). The central government has allocated Rs30 crore (US$6.9 million) towards the project and a detailed feasibility report is currently under preparation. According to LIDCAP the new complex will be built to international standards with the required environmental management. The construction of the leather complex is part of the Indian leather sector's long-term target to increase its market share in the global leather industry. Rafeeque Ahmed, chairman of the Council for Leather Exports underlined the industry's targets when addressing the inauguration of the IILF in Chennai last January: 'The leather industry has been identified as a growth area for the Indian economy and our priorities are to double our market share globally and create an extra million jobs by 2010. This will mean that annual production will have to triple to US$12 billion and exports double to US$4 billion.' The CLE is looking into setting up an exclusive agency to help develop India's leather clusters. 'There have been clear trends that India will be a major hub for sourcing leather products and it would not be an exaggeration to say that the Indian leather industry was on the verge of a truly transformational breakthrough', said Ahmed. The Indian leather industry is looking to invest in tannery or leather clusters rather than small projects or allocations. This is mainly because the Indian authorities are keen to build common effluent treatment centres to reduce the environmental impact of tanning. Clusters such as the Kolkata leather complex are seen as the way forward despite the fact that the project has experienced major delays. An investment package for the tanning sector was announced during the IILF last January worth Rs 400 crore (US$91 million). Rafeeque Ahmed said that this level of investment was needed to modernise tanneries and other leather product manufacturers' facilities. The fund was due to be allocated during the early months of this year to assist European and US companies in relocating their manufacturing facilities to India. Habib Hussain, regional chairman of the CLE south, said that the flow of manufacturing from the west to east was set to increase in the foreseeable future and he hoped that enterprises in the south of the country would obtain 50% of the new business. Duty changes The Indian Ministry of Finance has introduced both increases and decreases in the Indian drawback duty system. The new duty drawbacks, which became applicable from January, will now also be calculated using a metric rather than an imperial system. Values will be calculated in tonnes/kg in order to make the system clearer. The new rates have come down by 20% for many items such as leather footwear, footwear uppers, industrial leather gloves and leather sandals. For other items such as leather bags and leather gloves the cut has been closer to 10%. Rafeeque Ahmed, chairman of the CLE, said that the Indian Revenue Department had not consulted the industry on the new duties and that he would be asking for a serious re-think of the situation. 'The leather industry has been shocked by this sudden announcement. The reductions may well have a serious impact on exports of Indian made leather and leather products', he said. The rates remain unaltered for some items such as finished leather, leather garments and small leathergoods. IILF 2005 The 20th edition of the Indian International Leather Fair took place at the Chennai trade centre January 31-February 3, 2005. The exhibition featured 280 companies including 67 from 18 overseas countries. The fair was inaugurated by T R Baalu, Union minister of shipping, roads and transport, and exhibitors represented the leather manufacturing, tanning chemicals and machinery, footwear and footwear component sectors. A fashion show featured the latest garments, leathergoods and footwear, which were modelled by internationally renowned models. A total of 14 companies showcased their products at the fashion show entitled 'Classic chic'. The fashion show was held for the first time at the new convention centre on the site of the Chennai Trade Centre. Animal rights protesters interrupted the show for a few minutes but were escorted away without reaching the catwalk.