The Indian leather sector offers
Skilled Labour: Five institutes offering Bachelor’s Degrees and Diploma courses.
Low wage cost: around 2.5 million people employed in the value chain. According to CLE, every US$800 invested in the leather sector creates a job.
Research and development: about 180 patents filed in the last five years.
India is the world’s fastest growing democratic economy with a rapidly expanding domestic market. The nation’s consumption of leather products is expected to grow at around 3-4% per annum in the near future, driven by rising disposable incomes and the increased preference for leather footwear. The government’s hope that the country’s total exports could reach US$500 billion within five years, to be driven by the leather sector (alongside textiles, engineering, and gems and jewellery) has meant substantial investment in infrastructure in the form of leather parks and SEZ’s, as well as training for staff. Leather International takes a look at the latest efforts to support and stimulate the tanning industry
Interest in the International Leather Fair held in Chennai at the end of January was overwhelming with aisles and stands busy throughout the three-day event, and a reported 100 potential exhibitors turned away through lack of space. According to the Council of Leather Exports, the fair has doubled in size since 2002.
India is one of the very few places in the world where business is improving and which has been able to take some production away from China. A number of very well known brands are sourcing in India, including Next, Versace and Hugo Boss.
Leather exports from India account for around 3% of total global leather exports. The sector’s major export markets are USA, Germany, UK and Spain.
Overall, the industry generates approximately Rs250 billion (US$4 billion) accounting for 0.7% of GDP. It is estimated that 10% of the world’s supply of leather is processed in India. Export turnover in the 2005-06 financial year was US$2,694,000,000, which is about 2.6% of India’s total exports. 
Between April-September 2006, exports of all categories of leather and leather products increased in US dollar terms by 7.4%. This growth was primarily driven by increased footwear and components exports, whilst exports of finished leather experienced more modest growth. Footwear is expected to be the engine of further growth for the Indian leather industry in the coming years.
Current total production is 2 billion sq ft of leather per year. Value added finished products constitute around 80% of the total exports, compared with just 7% in 1956-57.
The highly fragmented nature of the industry has resulted in strong competition. Most tanneries are clustered within the states of Tamil Nadu, West Bengal, Uttar Pradesh and Punjab.
Raw materials
Of the 185 million hides and skins processed annually, 85% is sourced domestically. Cows account for 28 million pieces, buffalo 28 million, goat 82 million and sheep 30 million.
Cow hides are collected mainly from fallen carcases and illegal slaughterhouses while buffalo hides are collected from organised and mechanised slaughterhouses in northern and western India.
Most of the medium and large tanners perform customised work for the larger manufacturers and exporters of leathergoods on a fixed margin basis or pre-negotiated price for the finished leather. The need to import more raw hides, skins and wet-blue is growing continuously. 
Government policy
The Council for Leather Exports (CLE) has set an ambitious target of doubling Indian leather exports to about US$5 billion by 2010. This would imply an annual growth of 16% between 2006-10. In order to achieve this, the sector’s 11th five-year plan (2007-2012) focuses on development of design facilities, human resources, environmental concerns, subsidies for the modernisation of plants and attracting FDI to the sector.
Furthermore, duty free import of hides and skins is permitted from anywhere in the world to provide cheap and readily available raw materials. As the footwear sector is seen as crucial for growth, central excise has been reduced from 16% to 8% for items with a retail sales price of between Rs250-350. Present excise abatement of 40% on MRP of footwear has been brought down to 37%, consequent to the reduction of excise duty from 16% to 8%.
To further promote technology transfer and the development of the sector, 100% FDI and JVs are permitted through the automatic route. Funding is available to enable tanners to modernise manufacturing facilities. Machinery also benefits from duty-free/concessional import regulations and there are concessional rates of interest on export credits to mitigate the effects of rupee appreciation which had led to a tightening of credit.
On the smaller scale, under the ‘Support to Rural Artisans’ scheme, marketing and technological support for traditional and ethnic Indian footwear products such as Mojari, Jooti and Kolhapuri is being provided.
Challenges for the country’s leather sector identified by the plan include:

  • increasing indigenous supply of raw hides and skins to reduce the need for imports
  • the need to create infrastructure
  • create mechanism for workforce availability
  • increase India’s share in export markets and to seek out new markets
  • position Indian leather products in the branded and fashion segments
  • develop a centre of excellence for design and pattern making

Other major challenges for the Indian leather industry include effluent management, quality specifications, non-tariff barriers and cost of compliance to various standards.
To this end, CLE have lobbied the government for support in terms of improved infrastructure and the council have also appointed consultants in Spain, France and Brazil to attract joint ventures.
Currency problems
The appreciation of the rupee is a further challenge to the sector. Spic Pharma is a large biotech group based in Chennai which has been operating for the past twelve years. The group has an annual turnover of US$1 billion. However, according to Abhay Kumar, manager, 33% of the company’s export market has disappeared due to the currency crisis which has made indigenous chemical products more costly than imported ones.
At the IILF, Mukhtarul Amin, CLE chairman, stated that growth in the leather sector over the last year had not been as great as expected for the same reason. Last year there was a 9% growth in exports in US$ terms, but this translates to just 3% in rupee terms. However, it is thought that the US ‘recession’ will not affect India’s leather sector directly as only 10% of exports are bound for the USA.
Although rising labour costs, particularly in Dongguan and Shenzen, have dented Chinese production cost advantages, Rafeeque Ahmed president, All India Skin and Hide Tanners and Merchants Association, predicts that competition from Vietnam will increase as Chinese and Taiwanese investment increases in that country.
The importance of the footwear sector
Growth in the footwear sector has averaged 26% over the past three years. 909 million pairs of leather footwear and 100 million pairs of leather shoe upper are produced each year.  It is a major employer in the Indian economy.
79% of Indian footwear exports go to the European Union and 10% to the USA. In 2006-07 footwear exports were valued at US$1.2 billion. However, 95% of Indian footwear production is for the domestic market, underlining the sector’s importance to the economy.
Rafeeque Ahmed told the LERIG meeting in January that domestic markets had become the future focus of the industry. Indian companies make about two billion pairs of shoes annually for the domestic market while exports amount to less than 100 million pairs.
Despite the small proportion of exports a lot of effort has been made to develop the export market. With more international players looking at investments in India, the industry here is seen as a market for inputs and raw materials because of its production strengths.
There are also plans for a number of leather parks to provide improved infrastructure and economies of scale to the industry. A 153 acre footwear park is to be constructed adjacent to the footwear component park in Irungattukottai, 25 km from Chennai. The footwear park will be established as a special economic zone (SEZ) and will incorporate facilities such as a design studio, testing laboratory and training centre.
Ten footwear component manufacturers are setting up production units at present and according to the State Industries Promotion Corporation of Tamil Nadu, the park will provide an ideal opportunity for overseas investors to set up units either through FDIs or joint ventures with Indian companies.
Under the sector’s five year plan, the establishment of ten small integrated leather parks ranging in size from 25-100 acres is being considered by the government with an announcement expected shortly.
The Andhra Pradesh Government is planning to develop a 413 acre International Leather Complex at Krishnapatnam in the Nellore district of Hyderabad. The project report submitted by CLRI estimates the cost at around Rs180 crore, of which central government will provide a grant of Rs30 crore, and further funding is hoped for from the state government.
The footwear manufacturers of Agra in northern India will soon have a new leather park to help them meet their supply needs and to enable them to present their products to buyers more effectively. The state of Uttar Pradesh will invest $50 million in the project according to chief minister, Mayawati Naina Kumari. She added that the 4% rate of vat currently levied on footwear costing up to $10 would be abolished.
The city of Agra has long had a reputation for skilled leather workers and footwear producers, but most businesses have operated on a small scale. It is hoped that this development could help the local industry move to the next level. 
Problems faced by the safety footwear industry 
India is the major supplier of leather for safety footwear and uppers to European countries and production is mostly concentrated in Kanpur/Unnao. As manufacturing in Europe has fallen considerably, the consumption of leather and uppers by European safety footwear manufacturers has gone down. However, demand for this type of product has increased many fold in recent years. In spite of abundant raw materials and production capabilities India’s export share remains unremarkable.
In contrast, China’s exports of safety shoes has increased significantly. Most Chinese safety footwear manufacturers import leather from India, produce footwear in China and then export to European markets.
Indian producers face problems with the exchange rate and a lack of infrastructure. The fact that duty drawback is calculated on the basis of casual footwear where the inputs are less costly and mostly available on the domestic market also creates problems as safety footwear manufacturers have to use imported CE Certified inputs. The main components are protective steel toe caps and steel midsoles which have a duty structure of 24.42%. The duty drawback rates need to be reviewed.
The chemicals industry
In addition to government investment in the sector, the European chemical industry is also investing heavily in India. As well as BASF, TFL and Stahl, (see articles in this edition) Kemia Tau have inaugurated their first technical service laboratory in South Asia, located in Chennai. The lab, which will cover the full range of Kemia Tau products from wet-end to finishing, was inaugurated in January by Dr Alberto di Giovanni, director, Kemia Tau Italy.
Attention is being paid to the environmental consequences of the industry and progress is being made. The zero liquid discharge requirement (see Leather International June 2007) is being introduced in Tamil Nadu and safe landfill has already been completed in ten places according to Rafeeque Ahmed. He added that this process will make the water source safe for the future as it leads to a reduction in the quantity of dyes and fatliquors consumed due to the consistent quality of recycled water for the tannery.
Leather regions
Tamil Nadu in the southern region is India’s foremost leather producing area and has a major focus on finished leather and footwear components. Tamil Nadu comprises nine leather clusters at Chennai, Ranipet, Ambur, Vellore, Pernambut, Vaniyambadi, Dindugul, Tiruchirapalli and Erode. Together they produce 855 million sq ft of leather, 59 million pairs of footwear, 7 million garments and 30 million items in the leathergoods category.
The eastern region including Kolkata in West Bengal has a two-thirds share of the country’s leathergoods exports. Its share in India’s tanning capacity and production stands at around 22%. Cheap raw material, abundant water supply, skilled labour and low operating costs are the important factors that make the state an attractive destination for leather based industries. West Bengal has over 500 tanneries and a large number of leathergoods manufacturing units, most of which are small enterprises.
The world’s largest integrated leather complex is being set up at the outskirts of Kolkata on a Build-Operate-Transfer (BOT) basis. The US$78 million Bantala project is a joint venture between M L Dalmiya & Company and the West Bengal Government. The complex covers an area of 440 hectares. It will have a process capacity of 1,000 tonnes of rawhide per day.
When fully functional, the park is expected to generate approximately US$111 million worth of exports and employment for 10,000 people. It also features a design and training studio. Of the 600 unit capacity, 180 tanneries are currently operational with a daily production of 500 tons of finished leather.
According to West Bengal Chief Minister, Buddhadeb Bhattachjee, the government, encouraged by the uptake at Bantala, has decided to build a tanning complex at Panjipara in West Dinajpur district, primarily to process raw hides. The complex, to be developed under public private partnership (PPP) involves investment of about Rs30 crore in two phases.
Elsewhere in the region, the Tata Group has agreed to help update the teaching processes of the state’s leather training institute. This is considered a major breakthrough towards creating adequate highly skilled manpower for the industry.
The northern region (dominated by Agra and Kanpur) leads in the export of leather garments, saddlery and harness and footwear. According to Dr K Elangovan, executive director of CLE, growth is particularly strong in the Kanpur tanning cluster. The region is home to many of this year’s CLE export award winners including Superhouse, Mirza and Model Tanners.
The history of manufacturing of leather and leather products in Kanpur dates back 150 years to when the British set up factories for production of shoes and saddlery items with which to provide the military. Tanneries were originally set up on the banks of the Ganga in the Jajmau area, 10 miles from Kanpur.
Tanners in this area began to export from the 1960s. The area is particularly focused on saddlery and safety footwear. Its 342 tanneries and manufacturers registered with CLE export goods worth around US$663 million per year with particular emphasis on tanning buffalo.
The government and tanneries in Kanpur have taken necessary initiatives in dealing with environmental pollution. Under the Indo-Dutch Project, a CETP has been set up which takes care of 175 tanneries located there.
The area’s 300 acre Banthar technology park is partly functioning, housing nearly 158 leather units and 44 tanneries with the remainder for leathergoods manufacturers. According to CLE 24 units are currently producing finished leather, footwear uppers, safety and fashion footwear on the site.
To the east of the subcontinent, in Tamil Nadu, the Tiruchi Tanners’ Association is lobbying for the removal of export duties on East India leather, a type of semi-processed leather. According to V S M Varis Mohideen, secretary, EI tanning capacity accounts for less than 5% of the total capacity of the leather industry in India. Although the Ministry permitted the resumption of exports of EI leather in January 2000, the imposition of 15% export duty has reportedly crippled the industry.
This sector also suffered from the decline of the leather garment industry between 1990-2000. Exporters of finished leather and leather product manufacturers opted to import raw skin and other crust types after the government permitted duty free import of raw skins and leathers.
As a result, the capacity of EI tanneries is under-utilised, stock has accumulated and tanners face difficulties in upgrading effluent treatment plants by adopting membrane bio reactors and reverse osmosis technology despite the 50% subsidy offered by the government.
According to Mohideen, nearly 50% of tanning capacity in Tiruchi and Dindigul has been lost as tanneries closed on account of non-compliance with pollution control measures and the export duty.
Meanwhile, in the Punjab, 70 tanneries have relocated to the Jalhandar leather complex according to CLE. The CETP is currently being upgraded and the cluster features modern testing and training facilities from CLRI.
Industrialists of the Jalandhar Leather Complex are demanding SEZ status (special economic zone), with deemed exporter status for indirect exports and the setting up of a footwear design and development centre. Minister of State for Industry, Ashwani Kumar, said he would take up the issue and promised the set up of a facilitation centre for the city to attract both domestic and international buyers.
Kumar revealed that yearly turnover of the Punjab leather industry was Rs1,000 crore, of which only Rs400 crore was for export.
The Tata group, which is comprised of 32 companies producing everything from teabags to hotels and, arguably, India’s largest tanners have acquired automotive brands Land Rover and Jaguar. Tata Motors spent US$2.65million on the acquisition. Tata had been a preferred supplier of Ford since December 2007.
Tata Motors plan to increase production of Jaguars from 54,000 units to 100,000 but have pledged to conserve the identity of the two brands. Arzignano tannery Pasubio are the main suppliers of leather to Land Rover and Jaguar. Pasubio have a four-year supply contract with Jaguar and are reportedly not unduly concerned that Tata have their own tanning division as this focuses more on footwear and garment leathers rather than automotive.
‘The leather industry in the Punjab is not working to its potential and it is vital to attain global recognition and credibility by improving technological skills’, said Kumar, adding that Rs10 crore has been earmarked for such training.
The representatives also demanded organised animal farming to ensure a continuous supply of raw materials, amendments to labour laws to enable the leather industry to hire contractual labour and a waiver of import duty on capital goods.
Aero to take Woodland into malls
The Aero Group of Companies, makers of ‘Woodland’ brand of premium footwear, plan to invest nearly Rs100 crore in 2008-09 to set up new plants and double production capacity to 20,000 shoes per day at their facilities at Dehradun (Uttarakhand) and Baddi (Himachal Pradesh).
They are importing the latest technology to set up fully automated plants. The company are adding 100 outlets to their existing 180 and plan to set-up ‘shop-in-shop’ at retail malls across India. In addition the company are considering strategic tie-ups and outsourcing work to some partners in the southern states.
Woodland currently have a 20% share of the Rs2,000-crore branded footwear market in India.
For additional statistical information and images, please see the print version of Leather International June 2008