Intro: The requirements of India's leather industry need to be urgently and very pragmatically addressed to arrest the continuing loss of India's export market to countries like China, Indonesia and Vietnam.
The leather industry of India is a very important segment of our growth considering that India produces 10 per cent of world’s leather output. India is endowed with 21 per cent of world’s cattle and 11 per cent of world's goat and sheep population. Hence, leather production and export holds a prominent place among the sectors listed under the PM’s ‘Make in India’ programme.
Consider some important facts in regard to above. At the present rate of growth, the domestic market for leather is expected to double in the next five years and during the same time frame, the export market is expected to grow by 24 per cent. It is further to be noted that 55 per cent of our workforce is below 35 years in age and hence in the most productive age group. In view of the huge potential in the leather industry waiting to be tapped, the government has put an array of measures for skill development and skill upgradation of workforce. More than 50, 000 youth were trained and placed in the industry during the first 100 days run of the skill development and placement programme.
The government has permitted 100 per cent Foreign Direct Investment (FDI) through the automatic route in the production and export of leather. But the prudence of soliciting 100 per cent FDI in leather production, a low end technology industry, is not understandable. One can understand the necessity of such investment in a high technology, capital intensive industry sector. But in leather production, which has potential more in exports than in domestic market, we need to raise and use domestic financial resources. Our banks like SBI, PNB, ICICI Bank, Axis Bank, Indusind Bank etc. are overflowing with deposits which need to be utilised for establishing factories with economies of scale for global competitiveness.
The Integrated Leather Development Programme (ILDP) through its sub-scheme Integrated Development of Leather Sector (IDLS) has significantly contributed to capacity modernisation and technological upgradation of leather sector. But much more needs to be done. Many other steps have been taken by the Government of India to boost the growth of this sector. Excise Duty for footwear costing between Rs 500 and Rs 1,000 has been reduced from 12 per cent to 6 per cent. Under ILDP, assistance is provided for technology benchmarking and environment management of leather processing industrial units. Many financial and fiscal incentives have been announced under IDLS sub-scheme. The National Manufacturing Policy (NMP) released in 2011 identifies leather as a special focus sector for growth and employment generation and rightly so. The Department of Industrial Policy and Promotion has notified the Mega Leather Clusters sub-scheme. It will have new production centres for the leather industry with all the required infrastructure and support services.
We need to be alive and responsive to some of the serious problems afflicting the leather industry which need special focus, notwithstanding the industry promotional measures outlined above. Let us enumerate them and also see how they can be addressed. There is 60 per cent export duty on raw hide skin and semi processed leather and 15 per cent export duty on vegetable tanned leather in line with WTO regulations. This has led to illegal exports of semi finished leather causing revenue loss to the government and shortage of raw material leading to 25 per cent increase in leather price and erosion of India’s export competitiveness. The government needs to clamp down on this practice heavily. Threat from synthetic leather is another serious issue. This can be addressed by more focused marketing. A third problem is the slow pace of technological upgradation, bordering on the negligible. This can be tackled by effectively running the IDLS scheme.
Family owned companies constitute the larger proportion of the leather producing industry. These types of companies are conservative about technological upgradation as they find it difficult to raise cash for growth. Most of these companies do not, therefore, operate on economies of scale. The government needs to provide them hassle free finance and enable them to modernise and upscale production.
The requirements of India's leather industry need to be urgently and very pragmatically addressed to arrest the continuing loss of India's export market to countries like China, Indonesia and Vietnam.
(The writer is a senior columnist)