India – the one to watch

Overview
The Indian electorate has just successfully completed a general election which is the largest act of democracy in the world and took over a month to complete. The result was the re-election of the United Progressive Alliance (UPA) headed by the existing Prime Minister, Dr Manmohan Singh and taking them into government for a second term in office. The message the election result sends out to the international business community is generally of stability and a course toward continued economic growth for India.
The leather and leather product sectors are key to the Indian economy and the annual production value is believed to be worth $6 billion to the economy. From this total the Indian Council for Leather Exports (CLE) say that $3.47 billion is earned from exports. It is the country’s eighth largest foreign exchange earner and India is now the second largest manufacturer of footwear in the world after China with a 13% global market share. The tanning and leather product industries are also distributed around the country (see map) in clusters where the tanners and suppliers are situated close to the finished product makers.
In addition to their increasing manufacturing capabilities India also claims to have the largest source of livestock and, therefore, raw material supplies in the world. According to figures from the CLE India has 21% of the world’s cattle and buffalo as well as 11% of goat and sheep. The CLE state that around 2 billion sq ft of leather can be produced annually from their own supply of raw materials.
In a bid to help the domestic industry India has controversially prohibited the export of raw or part processed hides and skins. A policy which has no doubt helped them obtain a strong position despite not allowing free trade of raw materials.
Today, the Indian leather and leather products sectors employ around 2.5 million people with a high percentage being female. There is no doubt that the tanning, footwear and leathergoods industries have lifted many people out of extreme poverty although there is still a long way to go.

Exports
Tables 1-5 show that every aspect of the leather sector grew consistently between 2003 and 2008 reaching double digit growth rates year on year. Export earnings of $3.48 billion  were achieved last year.
Table 3 shows that the largest export market segment is footwear providing 42.4% of the total followed by leathergoods (22.6%) and finished leather (22%) being the other major earners. Export of leather alone was worth $767 million in 2007/08.
Table 4 shows that the European Union accounts for more than two thirds of Indian made exports of leather and leather
products, particularly leather footwear. Compared with China it has a relatively small market share to the rest of the world, especially to the USA, and hardly exports to the rest of Asia at all apart from Hong Kong.
A strength of India has been the ability of its industry to supply footwear and leathergoods to the European based brands. Looking at the list of large retail brands India supplies most of them. Within the European Union, Germany is the largest market (14%) followed by Italy (13.8%), UK (11.9%), Spain (6.1%), France (5.6%) and Netherlands (3.8%). Along with the USA, Hong Kong, UAE and Australia these ten countries account for more than three quarters of India’s total leather product export.  
Looking ahead, table 5 shows that the CLE and others are expecting the growth to continue despite the difficult market conditions experienced currently. The growth rate is predicted to be lower for 2008/09 but rises sharply between 2009-2011 to be worth $4.9 billion by the end of 2011. Based on the growth rates of the past five years such optimistic targets are possible. 

Government support
The Indian government have compiled a whole raft of various programmes and support to the industry from developing leather science and technology to making it easier for domestic producers to source machinery, import raw materials and equipment aimed at improving environmental performance. These measures can be summarised as follows:
° Funding provided to upgrade technology, including infrastructure, human resource, environmental safeguards and modernising production units
° Duty free import of raw, tanned, crust, split and finished leather
° Customs duty exemption on imports of equipment and machinery for effluent treatment plants
° Several duty drawback schemes and simplified import/export procedures
° Funding support for export promotion & market development
° Duty free imports of critical components for footwear, garment and leathergoods manufacture
° 100% foreign ownership and investment is permitted
° Import of tannery and footwear machinery allowed at 5%
° Gradual lowering of import tariff – current peak duty is 10%

The Indian government sees the leather sector as one of their ‘focus sectors’ under the national foreign trade policy. The Department of Industrial Policy & Promotion (DIPP) have undertaken a number of five year plans to build an integrated development programme for leather. The current programme which runs from 2007-2012 is confusingly called the ‘eleventh five year plan’ and the thrust of the plan is to provide investment to the sector to upgrade and modernise production facilities, build upon sector related institutions for science and technology and link training of human resources to move away from traditional artisan manufacturing methods towards design and technology led modern methods of production. In the leather industry the plan is also known as the Integrated Development of the Leather Sector (IDLS). For the Indian tanning industry all grants and investments are overseen by the Central Leather Research Institute (CLRI) and up to 30% towards the cost plant and machinery can be obtained.