India - one of the fastest growing leather sectors

6 February 2006

Due to the growing importance of leather in the Indian economy, the authorities have been placing increasing emphasis on developing this sector, with a particular view to optimising the use of available raw materials to maximise returns from exports. In terms of infrastructure, large dedicated leather parks are already in place in Kolkata, Jalandhar and Kanpur. As part of the government investment programme for the sector, the following additional parks are said to be underway: two footwear component parks at Chennai and Agra, a footwear complex in Chennai, a leathergoods park at Kolkata and a large tanning complex at Nellore in Andra Pradesh. The state government and the Indian leather products association have decided to set up a leathergoods export park including a multi-level training centre and design studio inside the CLC. Kolkata Leather Complex After several false starts, the Kolkata Leather complex (CLC) finally opened its gates on 30 July, 2005. At that time, 30 tanneries had relocated their units to the CLC. The complex is situated at Bantala on the eastern fringes of Kolkata and is said to be the largest integrated leather complex in the continent of Asia. The Rs600 crore project covers 1,100 acres and has the capacity to accommodate more than 800 tanneries, 500 of whom will be relocating from the heart of the city. The road to inauguration of the CLC has been a long one. Plans for the park were originally formulated after the courts ordered the relocation of more than 500 tanneries from the Tangra, Tijala and Topsia tanning clusters of the city as they were creating 'unacceptable pollution hazards'. Although the original estimates were that 250 leather accessories units and ancillary industries with a combined employment potential for 80,000 people would be located in the park, latest reports suggest that the actual figure will be closer to just 100 new leathergoods units. A special economic zone (SEZ) for the leather industry is to be created in the complex. An SEZ is defined as 'a duty-free enclave that is considered to be foreign territory for trade operations, duties and tariffs'. Exporters in the park enjoy the status of offshore units. It is hoped that with abundant raw materials available within the complex, manufacturers within the SEZ will save on transportation costs. At the inauguration of the complex, minister Buddhadeb Bhattacharjee stated that Bengal would now pose strong competition for Chennai. 'The complex will boost the traditional leather sector in the state. Currently the state enjoys a 19.4% share in the domestic market and a 25.8% share in the export of leather products. We feel the sector will advance rapidly after the CLC commences the full-fledged production.' He also noted that the state government's investment in the project had exceeded Rs70 crore and a further Rs30 crore would be spent on public infrastructure, and appealed to the government to convert the Rs32 crore central loan for the project into a grant. Bhattacharjee expects the CLC to receive substantial foreign investment. However, some reports suggest that uptake has not been as enthusiastic as predicted and in late August 2005, the government of West Bengal was planning to carve out a portion of the park for an IT complex. The area under consideration was reportedly 130 acres. State commerce and industry minister, Nirupam Sen said that the leather complex had some excess land and discussions were in progress with regard to accommodating increasing demand from the IT sector. According to M L Dalmiya, the construction company behind the complex: 'CLC will lead the resurgence of the leather industry in West Bengal and also provides a unique platform of significant growth, operational economy and sustenance of the leather sector for the rest of the country'. The company claim that the complex 'with the most economical infrastructural cost' is one of the foremost eco-friendly and planned complexes in the country. Unido was entrusted with the design and engineering of the CETP. Unido in turn appointed the BKH group of the Netherlands, an industry expert for tannery wastewater. The treatment technology adopted is physical-chemical primary treatment, followed by high load activated sludge treatment. The main advantages of the system, compared with alternatives such as anaerobic systems are: proven technology for tannery wastewater treatment, high process reliability, simple operation and process control, relatively low investment costs. The only presumed onsite treatment at the tanneries consists of removal of grease, coarse and settleable material in order to prevent clogging and siltation of the wastewater collection network. The chromium tanning liquor is to be collected separately from other process wastewater flows and is to be treated at separate chrome recovery units. The generated sludge is disposed of in a land fill adjacent to the CLC, ensuring proximity of operations. The West Bengal pollution control board has set the following standards for the quality of final effluent: pH6.5-9, BOD (3 days, 27°C) 100mg/lt; suspended solids 100mg/lt. Effluent treatment in tanneries Presently, tanneries in Tamil Nadu and north India have installed effluent treatment plants with chemical and biological treatment. While most of these plants are operated with utmost care for efficient treatment, the achievement of the stringent BOD limit of 30mg/l and COD limit of 250mg/l is consistently found to be a Herculean task, and even in plants where the BOD limit is achieved, the achieved COD is far above the value, reportedly due to the low degradability of new chemicals used in finishing operations. At present, pollution control boards are observing the situation but no action has been taken until now. Tertiary treatment systems for achieving COD values are quite costly. It has been observed in Italy where achievement of COD value is mandatory, the cost of effluent treatment is almost 8-10 times of the amount spent by Indian ETPs. According to M L Dalmiya, the CETP in CLC is the only one to achieve all the specified standards. This is because there is no TDS or COD limit and the BOD limit is 100mg per litre, due to the unique and strategic location of the CLC beside the SWF canal leading to the sea which has a huge dilution potential. This ensures that the impact of effluent discharge even at peak production from the complex should be negligible. Thus the CLC, one of the foremost eco-friendly and planned complexes in the country, provides the most secure and safe platform for sustainable growth of tanning and allied activities. The memory of closure of more than 400 tanneries by order of the Supreme Court of India is still fresh in the minds of Tamil Nadu tanners. It is reported that even the tanneries with ETPs achieving just above 30mg/l BOD were closed. So, leather industry progress is not all plain sailing. The leather sector in Jalhandar, reportedly worth Rs1,000 crore, (US$2.2billion) is said to have suffered a decade of setbacks which entrepreneurs blame on unfriendly government policies. Local sources report that the industry, plagued with problems ranging from lack of quality hides and slaughterhouses, has asked the government to set up more slaughterhouses and promote cattle rearing in a big way in the state. According to Ashok Sharma, a member of CLE in Jalhandar: 'The past decade has seen a marked decline in the quality and quantity of hides and skins that are available to the leather industry here. More than 75% of raw material is of rejection grade though the defects could easily be eradicated'. Sharma believes the lack of quality is due to unprofessional flaying methods. The state has only one slaughterhouse at Derrabassi, despite it having the second highest number of cattle after Uttar Pradesh. CLRI have been asked to undertake a pilot project to encourage setting up large farms of cattle and open large slaughterhouses in each district. Development of the sector/exports The industry has evolved over the years from an exporter of raw material in the 1960s to concentrate on value-added products in the '90s. These finished leathergoods currently account for around 80% of the industry's total exports, compared with just 7% in 1956-57. This has led to greatly increased export revenue. Exports of leather and leathergoods increased from Rs280 million in 1956-57, to Rs30.8 billion in 1991-1992, reaching Rs106.9 billion in 2004-05 (US$2.3billion). This constitutes an export growth of 12.6% over the past two years (compared with 5.3% global import growth). Although exports to Italy decreased by 17.5% in 2004-05 compared with the previous year, exports to the following countries increased particularly sharply: China 30%, Belgium 26%, United Arab Emirates 21%, and Republic of Korea 20%. And it is not only demand from overseas which is growing. Domestic demand for leather and leather products is expected to rise dramatically with growing GDP, particularly footwear and leathergoods. Annual production, currently at US$5 billion, is expected to achieve US$12 billion by 2010. Exports, currently at US$2.4 billion, are projected to reach US$5.1 billion. The Union Commerce and Industry Ministry believes that the export forecasts hold enormous employment potential, particularly in rural and semi-rural areas. From 2004 to 2005, exports of finished leather and leather garments decreased slightly (by 6% for each sector) while exports of leather footwear rose by 22%, leathergoods were up 9.8% and saddlery and harness leather rose 16%. Overall exports rose 5.8% comparing April-August 2004 with 2005, to a total value of US$1031.8 million (according to DGCI&S). Exports from the footwear sector recorded a phenomenal growth of 17.3% in the first five months of 2005-2006, according to DGCI&S, making footwear a particularly strong sector. India has become a popular destination for footwear manufacturers who are increasingly looking to diversify production away from China and Taiwan. Spanish footwear company Zahonero are reportedly in the process of establishing their own manufacturing unit for shoes in Delhi and they are just one of many. Apache footwear, a Taiwan-based shoe manufacturer, announced plans to set up a $60 million footwear production facility near Chennai. The company is in discussions with the state government to acquire over 250 acres of land near Sriperumbudur, 35km west of Chennai. The facility will be a subsidiary of the Taiwan company. Industry sources believe that the venture will serve as a catalyst for further foreign investment. The footwear market in India is said to be worth Rs8,000 crore (US$1.8billion). UK footwear brand Clarks, which entered India early last year, plan to expand operations. With existing stores in Mumbai, Ahmedabad and Bangalore, Clarks are planning to open further stores in Kolkata and Delhi. There is plenty of confidence in consumer power in Asia. Sarah Lynch, international director of Clarks, said the Asian market, especially India, has immense potential to grow and, therefore, the company plan to open at least one store a month in the major cities. 'The company, internationally, increased sales from 34% to 64% which was primarily driven by the Asian markets.' She added that the company plan to invest £100 million in the Indian market to set up systems and put together a proper distribution network. While footwear exports continued to increase by 19.2% in the first half of 2005, the leather garments sector did not fare so well, with exports dropping by 8%. The CLE is currently planning measures to assist the garment sector. Government economic incentives The location at the heart of the Asian market has made India an attractive option for foreign companies such as Conceria Virginia etc. The Indian authorities have encouraged this. Conditions offered to foreign investors include 100% repatriation of profit and dividends, if investments are made in convertible foreign currency. (Only a declaration to this effect from the reserve bank is required.) According to CLE, 'The government of India plays a proactive role through various funding schemes to enhance exports of leather products considering the industry's inherent strengths and prospects.' Imports of all types of raw materials are free of duty and the duty on imports of machinery and equipment has recently been lowered. There is a concessional duty on imports of specified machinery for use in the leather sector. The entire leather sector is now de-regulated, paving the way for expansion on modern lines with state of the art machinery and equipment. Special economic zones have been set up around the country which are described by Habib Hussein of CLE as 'super efficient trading hubs that will reduce costs and increase efficiency.' This infrastructure building is currently a major focus for the Indian government with upgrading of environmental safeguards to the highest standards and promotion of dedicated leather and leather product industrial parks. Infrastructure strengthening in the leather sector is now given top priority. Bureaucracy However, it seems that some vital schemes, such as the 'technology upgradation fund', are being held up unnecessarily by bureaucracy. More than 130 tanneries have applied for around Rs16 crore, (US$3.5million). Nevertheless, Rafeeque Ahmed, chairman of CLE, believes that the fund which will be available to all segments of the industry as a capital subsidy for plant and machinery will be a catalyst for new investments totalling Rs1,200 crore (US$260million). The fund was approved by the planning commission more than two years ago. The Cabinet Committee on Economic Affairs (CCEA) gave its nod in July 2005. The scheme finally came into effect on November 3, 2005, and will be implemented through CLRI for leathers and FDDI for other product segments. Role of CLE The CLE are particularly proactive in marketing. During October, in conjunction with the American Apparel & Footwear Association (AAFA), the CLE organised a week-long visit to India by twelve members of the US footwear fraternity. The delegation included representatives of well-known US footwear companies such as Timberland and New Balance. During the visit, the council organised product exhibitions and factory visits with leading Indian footwear companies in Delhi, Agra, Chennai and Ambur. According to the CLE, the quality and finish of leather and the availability of skilled manpower were the main positives highlighted by the delegation. The CLE have also been seeking investment from China through FDI joint-ventures and technical cooperation agreements. A team from CLE visited China from November 8-11 and several areas of mutual interest have been identified for development of trade and exchange in the sector between India and China. One area that the Indian sector needs to address is raw material quality and animal husbandry. There is such an abundance of raw materials supply being wasted at the moment. Working with the Indian Government, better systems need to be put in place. Indications for the future include encouraging take up of new technology and Foreign Direct Investment. There is enormous potential for future growth, encouraged by 100% foreign direct investment and joint-ventures permitted. Kamal Nath stated that the Indian leather sector should aim to account for 5% of world trade in leather in the next five years. In the fashion world, Indian colours began to feature at Modeurop in 1997 and in the June 2003 edition, all 16 colours selected were from Indian companies. Capitalising on the success of India at Modeurop in recent years, a Modeurop material bank was launched at important leather and product manufacturing centres such as Noida, Kanpur and Chennai earlier this year. During IILF, the Indian fashion show is well received and the fashions are of a very high standard. The Indian International Leather Fair held in Chennai is the main showcase for the industry in India. The 21st edition of the fair will run from January 31-February 3 and include fashion shows and conferences. The fair has grown steadily over the past years and the 2005 edition attracted 276 exhibitors from 18 countries. India claims that its leather industry is: * 4th largest manufacturer of leather garments in the world (16 million pieces) * 4th largest exporter of leathergoods in the world (63 million leathergoods and 52 million gloves) * All operational tanneries linked to individual or common effluent treatment plants * Largest manufacturer of harness and saddlery goods in the world and the 'new seat of the equestrian industry' * 2nd largest manufacturer of footwear after China, producing 16% of the world's footwear output * Fastest growing free market democracy, rising consumer spending * Continual quality improvement * Growing accessories and components industry * Suede is India's speciality * India accounts for a share of 2.5% of the global leather trade (CLE) * Annual production value of over US$4 billion * Annual export value over US$2 billion * 2 billion sq ft of leather produced annually * Continually modernising and upgrading technology Raw materials Other advantages in India include a large source of hides and skins. According to the CLE (Council for Leather Exports), India is the largest livestock holding country. 21% of the world's cattle and buffalo and 11% of the world's goat and sheep population are located in India. The CLE state that India provides 10% of the global leather requirement, producing 2 billion sq ft, of which 490 million sq ft is exported. Locations The major centres of the Indian leather industry include Chennai, Kolkata, Kanpur, Mumbai, Jalandhar, Bangalore, Hyderabad, Ambala and Delhi. Centred in the northern states of Punjab, Haryana, Uttar Pradesh and West Bengal and in southern areas bordering the sea: eg Maharastra. The industry counts on the presence of support industries such as leather chemicals and finishing auxiliaries. There is also institutional support from CLRI, CLE, FDDI, NIFT, CFTI, NID etc. The Indian leather industry occupies a prominent position in the country's economy due to its substantial export earnings and employment opportunities. The leather sector currently ranks 8th in export foreign exchange earnings. The leather and associated industries are the second largest employer in India. 30% of the sector's 2.5 million employees are women. A mine of useful information The library of the Central Leather Research Institute is a veritable treasure trove of leather literature. The collection covers a huge range of topics, from trade and commerce to the science and technology of leather manufacture, as well as allied fields such as footwear and leathergoods. There is also a comprehensive collection of material on biochemistry, chemistry, environmental engineering, plant science, polymer science and technology. The library's collection includes reprints of monographs published in the late 19th century relating to leather manufacture techniques in the various provinces of India, as well as texts such as Alexander Watt's 'Leather manufacture' published in 1919 and Procter's 'Leather industries laboratory book' (published 1898) and 'Principles of leather manufacture' (1922) take pride of place. The collection covers several languages such as French, German, Spanish, Russian and Italian. Volumes of periodicals held, such as JALCA and JSLTC, date back to 1915. Dissertations relating to leather are also actively procured and, at present, the library has more than 150 masters and PhD dissertations from India and the US. The library also hosts exhibitions such as 2003's 'the History of leather'. The library is visited by an average 100 visitors per day. The CLRI also regularly publishes research material. The library is fully automated and there are plans to make the catalogue available via the internet in the future. Exchange rate $1 = 46 rupees 10 million = 1 crore

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