India’s leather industry has railed against the proposal to impose a sharp export duty cut on raw leather and hide from 60% to 40% in the 2019 Union Budget, put forward in Parliament last week. The 15% export duty on East Indian tanned leather was also abolished on 5 July. The share of these items is not huge in the leather export basket at present, but an increase in their export after budget incentives is expected to create a supply crunch.
Leather goods manufacturers and tanneries are worried the cut proposal will create an acute raw material squeeze in the domestic market, ultimately leading to uncompetitive pricing of Indian finished products in the global arena.
At present, the share of raw hide and leather skin in India’s net leather and leather goods exports, which stood at more than $5.3 billion in 2018-19, is almost negligible due to higher export duty and a robust domestic demand. However, the industry is apprehensive the incentive will benefit organised slaughterhouses, but in turn hit the leather sector by narrowing the supply pool.
Chairman of the Council for Leather Exports (CLE) and leading Agra-based leather footwear exporter, Puran Dawar, said the export duty cut on hides would adversely affect the leather value chain right from tanning to finished goods, especially at a time when finished leather exports were already down.
“If leather goods industry does not get raw material, how will it survive and proliferate. Every country preserves its raw material resources, especially in sectors, which are competitive, organised and growing, such as leather in India. Yet, the finance ministry has proposed the export duty cut on hide, which defies logic,” he told Business Standard.
“At a time, when our biggest competitor Bangladesh does not allow raw hide shipments and instead provides 20% export duty drawback on finished leather goods, India has proposed to promote hide exports and create a shortage for the domestic industry,” he lamented.
He claimed the Kanpur leather cluster would be the hardest hit by the Budget proposals. The Kanpur leather industry has already been facing a crisis owing to the continued closure of more than 200 leather tanneries over the past several months over environmental issues, while some units are already considering a shift to West Bengal.