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Chapter III Productivity Of Leather & Leather Products Sector 15

3.1 Introduction 15

3.2 The Key Features of the Registered FactorySector

15-16

3.3 Data and Variables 16

3.4 Growth Rate Analysis of Leather Industry 16-17

3.5 Labour Productivity Growth 17-18

3.6 Partial and Total Factor Productivity Analysisof Leather Industry

19-21

Chapter IV Export Trends In Leather And Leather Products 22

4.1. Introduction 22-24

4.2 Export of Finished Leather 24-25

4.3 Export of Leather Footwear 25-26

4.4 Export of Leather Goods 26-27

4.5 Export of Leather Garments 27-28

4.6 Export of Leather Footwear Components 28-29

4.7 Export of Saddlery and Harness 30

4.8 Major Leather Products Exporting Countries inthe World

31

4.9 World Leather Exports Growth 31-32

Chapter V Globalization And Prospects For Leather Industry 33

5.1 Introduction 33

5.2 Competitive Strengths of Indian LeatherIndustry

34

5.3 Indian Leather Industry: Constraints 35-36

5.4 SWOT Analysis 37-38


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Chapter VI Field Survey Findings 39

6.1 Profile of Leather Manufacturing Units 39-40

6.2 Turnover and profitability of the Units 40-41

6.3 Profitability of the Manufacturing Units 42-43

6.4 FDI and ICT Usage 44-45

6.5 Employment Profile 45-46

6.6 Trade Related Information 46-50

6.7 Cost Competitiveness 50-51

6.8 Price Factors 51-52

6.9 Factors affecting Productivity 52

6.10 Factors responsible for Competitiveness of theUnits

53

6.11 Research and development expenditure andProduct innovation

53-54

6.12 Factors affecting competitiveness of the Units 54-55

6.13 Measures taken for boosting domestic &export competitiveness during last five years

55

Chapter VII Recommendations 56-59

References 60-61

ANNEXURE Annexure 1 (Survey Questionnaire) 62-71

Annexure - 2 (List of Units Contacted for the Study) 72-74

Annexure 3 (Methodology Adopted for Partial andTotal Factor Productivity Estimations) 75-77


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IV

LIST OF TABLES

TableNo.

ParticularsPageNo

3.1 Characteristics of Registered Leather Industry in India (Valuein Rs. Lakhs, others in Numbers) 16

3.2 Growth of Organized Leather Industry 17

3.3 Labour Productivity Growth in Indian Leather Industry:Segmentwise Analysis

18

3.4 Productivity Estimates for Labour and Capital inputs 19

3.5 Labour, Capital and Total Factor Productivity Growth (%) 20

3.6 Index of Labour, Capital and Total Factor Productivity GrowthRates

21

4.1 Composition of Indias Leather Exports: 1991-92 to 2007-08 22

4.2 Direction of Indias Leather Exports: 1991-92 to 2007-08 24

4.3 Indias exports of finished leather: Destination wise (US$Million)

25

4.4 Indias exports of leather footwear: Destination wise (US $

Million)

26

4.5 Indias Exports of Leather Goods: Destination wise (US $

Million)

27

4.6 Indias exports of leather garments: Destination wise (US$

Million)

28

4.7 Indias Exports of Leather Footwear Components: DestinationWise (US $ Million) 29

4.8 Indias Exports of Saddlery and Harness: Destination Wise(US$ Million)

30


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4.9 Export Share of Major Leather Producing Countries in theWorld

31

4.10 Growth in World Trade of Leather and Leather Products 32

6.1 Distribution of Leather & Leather Products Manufacturing

Units NPC Field Survey

39

6.2 Average Annual Turnover of the 62 Leather ManufacturingUnits State wise (Rs. Lakhs)

41

6.3.a Average Profitability of the Units during 1991-2000 (Number

of Responding Manufacturing Units)

42

6.3.b Average Profitability of the Units after 2000 (Number of

Responding Manufacturing Units)

42

6.4 Extent of increase in Profitability after 2000 42

6.5 Extent of decrease in Profitability after 2000 43

6.6 Extent of ICT usage in the Unit 44

6.7 Average Employment per Unit 45

6.8 Range of increase in employment 46

6.9 Units engaged in exports (Number of Manufacturing firms) 46

6.10 Percentage of exports to total sales 47

6.11 Growth in export during the last five years 47

6.12 Range of increase in exports during last five years 48

6.13 Import by leather manufacturing units 48

6.14 Level of import of raw materials for units Productionrequirement

49

6.15 Level of import of finished product 49


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6.16 Domestic market share of the manufacturing unit 49

6.17 Share of domestic sales to total sales 50

6.18 Cost competitiveness of the firm during the last five years due

to labor productivity

50

6.19 Cost Competitiveness of firms due to Total Factor Productivity 51

6.20 Ratio of various Cost Components in Total Cost of ProductionRespondent (%)

51

6.21 Labour productivity during last five years 52

6.22 Research and Development Expenditure by Manufacturing

firms

53

6.23 R&D and Product Innovation 54


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VII

EXECUTIVE SUMMARY

Lea ther an d Lea ther Prod uc ts sec tor is one of the im p ortant sec tors am ong the va rious

c onst ituents of th e m a nufac turing sec tor in Ind ia , ma in ly d ue to its c ontr ib ut ion tow a rd s

em p loyme nt . It is one o f the un iq ue sec to rs w h ic h ha ve the a dva n tag e o f the bo thva lue addi t ion and export potent ia l . I t a lso contr ibutes s ign i f icant ly to to ta l

m anu fa c tu ring ou tp u t a nd expor ts f rom the c oun t ry .

Leather industry has massive potential for employment, output growth and export. The sector isone of the top eight foreign exchange earners worth over Rs. 10000 crores per annum andaccounts for 3% of the global leather-related trade of Rs. 387200 crores. An estimated 15% oftotal purchase of leading global brands in footwear, garments, leather goods & accessories inEurope, and 10 percent of global supply is outsourced from India. Leather industry hasundergone dramatic transformation in the recent years from a mere exporter of raw materials in

the sixties to that of value added finished products in the nineties.

The Indian leather industry comprises of both organized and unorganized and organized sectors.The organised manufacturing sector broadly consists of tanning and dressing of leathermanufacture of luggage, handbags saddlery, harness and footwear. Currently unorganizedsector plays a dominant role in the entire production. The small scale, cottage and artisansectors account for over 75 per cent of the total production and majority of them belong tounorganized sector. Though footwear is produced by both large and small scale sector, the smallscale sector has almost 90 per cent share in the total production of footwear in India.

Ind ia s lea ther and lea ther produc ts expo rts ha ve b ee n grow ing a t 6.80% p er annumd uring 1991-92 to 2007-08. M a jor exp o rt de stina tions a re G e rm a ny, USA, UK, Ita ly a nd

Hong Kong . Ind ia s expo rts of f in ished lea ther ha ve b ee n g row ing a t the ra te of 6.42%

d uring 1993-94 to 2007-08. Hong Kon g is on e o f the m a jor expo rt d estinat ions of f in ishe d

lea the r p rod uc ts. Hon g Kon g c ornered the la rg est sha re (42%) of Ind ia s f in ishe d lea the r

e xpo rt in 2007-08.

Lea ther Foo twe a r:Ind ia s expor ts o f lea the r foo twe ar have be en g row ing a t the a nnua l

ra te of 3.50% d uring 1991-92 to 2007-08. The lea d ing im p orter of Indian lea the r foo tw ea r

is UK fo llow e d b y Germ a ny, USA, Ita ly, etc .

Lea ther Go od s: Ind ia s expo rts of lea ther goo d s ha ve b ee n d ec rea sing a t the rate o f 2%

per annum during 1991-92 to 2007-08 period. Germanys posit ion as the major

dest inat ion of Ind ia s leather goods exports dur ing the ear ly 90 s has changed


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d ra stic a lly. UK, Sp a in, Net he rla nd s, Australia , UAE a nd Belg ium ha ve a ll inc re a sed the ir

im p orts from Ind ia .

Lea ther Ga rme nts: Lea ther ga rm ents expo rts from Ind ia ha ve b ee n d ec rea sing a t the

a nnua l ra te of 2.46% d uring 1995-96 to 2007-08. G erma ny is the lea d ing im p orter oflea ther ga rm ents d uring 2007-08. The sha re of Belg ium a nd Ca na d a ha s inc rea sed ove r

the yea rs. Lea the r g a rm en ts exp orts to Germa ny, Ita ly, USA, Fra nc e, UK a nd

Nethe rla nd s d ec lined ove r the yea rs.

Lea ther Foo twea r Com p one nts:Ind ia s expo rts of lea ther foo tw ea r c om p one nts ha ve

b ee n d ec rea sing a t a n a nnua l ra te of 2.27% d uring 1995-96 to 2007-08. Ind ia s exp orts

of lea ther foo tw ea r c om p one nts ha ve increased to Sp a in , Portuga l, Fra nc e,

Sw itzerla nd , Slov a kia , Austria a nd Hunga r, Ita ly, G erma ny a nd Fra nc e a re th e m a jor

im p orters of Ind ia n Lea ther Foo tw ea r c om p one nts.

Sa d d lery and Harnesses: India s exports of saddlery and harnesses have been

inc rea sing a t the a nnua l ra te of 8.96% in the p eriod of 1995-96 to 2007-08. How eve r, the

exp ort sha res of USA, Ge rm a ny, Fra nc e, Neth erla nd s a nd Austral ia h a ve b ee n

dec l in ing.

Glo b a l isa t ion a nd Prospe c ts for India n Lea ther Sec tor

Currently India has a share of 2.3 per cent (i.e. US $ 2 billion) of global trade of leather andleather products. India has a large and growing middle class of about 250 million people withgood purchasing power. Global players in the leather business, big or small are today focusingincreasingly on India's domestic market.

The l ivesto c k is the ra w m a te ria l for the lea the r ind ustry. C a tt le, b uffa loe s, go a t a nd

shee p a re the four live stoc k sp ec ies w hic h p rov ide the b a sic ra w m a ter ia ls for the

lea the r ind ustry. Ind ia ra nks first a m on g m a jor live sto c k hold ing c ou ntr ies in the w orld . In

fac t , Ind ia ha s the c a p a c ity to fu lf ill 10% of the g lob a l lea ther req u irem ent .

The a nnua la va ila b ility o f 218 million g oo d q ua lity p iec es of h id es a nd skins is the m a in streng th o f

the ind ustry . Along w ith r ic h e nd ow m ent of raw m a ter ia ls, the industry ha s a c c ess to

ab unda n t supp ly o f c hea p lab our. Over the yea rs th roug h g overnment supp or t the

ind ustry ha s b ee n a b le t o d ev elop its R & D fa c ilit ies c on sid erab ly. Tho ug h the re is m uc h

to be done in order to meet the chal lenges of g loba l iza t ion, the industry has

esta b lished a sound b a se for the sam e.


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Grow th Co nstra ints

There continues to be acute shortage of good quality finished leather. As a result the industry is

dependent on import from China and other countries. Lack of adequate product qualityadversely affected exports. On the technology front, most tanneries use outdated technologywhich inhibits them from producing good quality leather in spite of access to quality rawmaterials such as hides and skins.

Leather industry across the globe has been subjected to stringent pollution control norms due togrowing environmental concerns. Since the industry is dominated by small and tiny producers,the availability of finance and the cost of capital turn out to be a major constraint.

The Indian footwear component industry which is the pride of India in terms of its contributionto total leather exports is facing stiff competition from China in a number of shoe components -

cellulose insole fabrics, coated, impregnated fabrics and interlinings, where the price of theimported materials is between 40% and 50% lower than the indigenously produced materials.Along with the lack of competitiveness, the size of the Indian footwear segment appears to be toosmall in comparison to that of China. This is evident from the fact that India's share of the globalfootwear imports is 1.5% while that of China is 14%.The main reason for the low scale of operation in the leather industry and in the footwearsegment could be due to the lack of investments in the sector. Over the last 20 years China hasattracted more than 10 times of investment that India has attracted. This may be of the fact thatfor a long time the sector almost in its entirety was in the SSI list. Only after 2001 the leathersector was de-reserved.

Field Survey Findings

In o rd er to find o ut the issue s a nd c on c erns a t the firm lev el a fie ld surve y w a s c a rried

ou t w ith struc tured q ue stio nna ires. Firm leve l d eta ils on t urnove r, em p loym en t, do m estic

and fore ign trade, product descr ip t ion, cost re la ted in format ion, fac tors af fec t ing

p rod uc t iv ity , fac tors resp onsib le for c om p et i t ivene ss etc . w ere c om p iled .

M a jority o f the resp on d ing units (58%) b elong to sm a ll sc a le c a te g ories. Nea rly 63%

resp ond ing m a nufac turing units op ined tha t the q ua lity ac c red ita t ions b oo sted the i r

b usine ss.

As reg a rd s to a ve ra g e p rof i tab ility a fter 2000, 76% units rep orted tha t the re is a n

inc rea se of p rof ita b i lity . A la rg e m a jor ity o f m a nufac turing units rep orted a n increase in

exp ort in the rec en t yea rs. Mo st of the m rep orted tha t foreign d irec t inve stm en t is less

than 10 pe rc en t .


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Average em p loyme nt a c ross the m anu fa c tu ring un its have be en found inc reasing f rom

257 em p loye e s p e r unit d uring 2003-04 to 315 em p lo ye es p e r unit du ring 2007-08. The

d ec line in em p loym ent rep orted d uring the last yea r ind ic a tes tha t the sec tor is fac ing

p rob lem s d ue to inc rea sing c om p et i t ion . The c a sua liza t ion of lab our inc rea sed d uring

the la st five ye a rs.

Cost competitiveness of the manufacturing units increased during the last five years. More than86% units reported that price competitiveness increased during the last five years. However, theproduct price was reported increasing due to the increase in the import of raw materials duringthe last five years.

A large major i ty of manufactur ing uni ts (65%) reported an increase in labour

p rod uc tiv ity d uring the la st f ive ye a rs.

Tho ug h the a va ila b ility of q ua lity hum a n resou rc es inc rea sed d uring the la st f ive yea rs, it

is rep o rte d to b e still sho rt o f ind ustry nee d .

As fa r a s G ove rnm en t inte rfa c e w ith b usine ss/ p riva te sec to r is c on c erned , a b ou t 69%

m a nufa c turers a re n ot sa tisf ied .

Ma jor fac tors tha t ad verse ly a f fec ted the c om p et i t ivene ss of lea ther m a nufac turing in

Ind ia ha ve b een ide n t if ied a s non c ond uc iveg ove rnm ent p o l ic ies a nd ta xes, rup ee

a p p rec ia t ion a g a inst do lla r, inc rea se in ra w m a ter ia l p ric e , po or q ua lity of prod uc ts,

inc rea sing la b o ur c ost, infra struc ture bo tt len ec ks, inte nse c om p et it ion from Ch ina , very

h igh in terest ra te , la c k of q ua lity w ork force , expo rts c lea ra nc e p rob lem s, h ighe r im p ort

a nd exc ise d uty , h igh p ow er & w a ter cha rg es, o ld d esign s, cha ng es in the fo re ign

b uyers ta ste p referenc es, prefe renc e fo r b ra nd ed item s, h igh er inc om e ta x ra te o n

exp ort p rof i ts, po llut ion no rm s et c .

Recommendations:

It is quite apparent that the globalization process though threatens Indian leather sector,provides ample opportunity in the form of potential growth.

Efforts should be made by government and other agencies to improve product quality.through improved design, development and prototyping.


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Red uc tion in exc ise d uty for Lea the r a nd Foo tw ea r Ind ustry sho uld b e c on sid ered .

The C entra l exc ise d uty has b ee n red uc ed b y Go I a s p a rt of the ec ono m ic st im ulus

pa c kage s Announc ed on De c em be r 7 , 2008. The c en t ra l exc ise d u ty on foo twe ar o f

MRP b et w ee n Rs. 250/ p a ir to MRP Rs. 750/ p a ir ha s b ee n red uc ed from 8% to 4% a nd

for foo tw ea r of M RP exc ee d ing Rs. 750/p a ir ha s b ee n red uc ed from 14% to 10% a s

pa rt o f the ec onom ic st im u lus p ac kage . In the st im u lus p ac kag e a nnounc ed on

Feb rua ry 24, 2009, the re ha s b ee n red uc tion in the g en era l ra te o f c en tra l exc ise

d uty from 10 p er ce nt to 8 pe r c ent . The e xc ise d uty on foo twe a r of MRP exce ed ing

Rs. 750/p a ir has now b ee n further red uc ed from 10% to 8% in th e third st im ulus

p a c kag e a fter be ing red uc ed from 14% to 10% in the first f isc a l st im ulus p a c kag e.

CHAPTER I

INTRODUCTION

1.1Background

The leather and leather products sector has been identified as one of the unique sectors which hasthe advantage of both value addition and export potential. Apart from the contribution toemployment, this sector contributes significantly to total manufacturing output and exports fromthe country.

The methodology adopted for the present study is based on two pronged approaches. Firstapproach is based on a review and analysis of published data and literature related to the sector.

Second approach is to conduct an in-depth field survey of the manufacturing units throughstructured questionnaires and discussions. The survey has been carried out among middle and toplevel executives of leather and leather manufacturing units spread across various leather clustersin India. Apart from the unit level investigations, the views of leading experts such asmanagement specialists, technologists, economists, policy makers etc., have also been sought ona host of issues related to the sector.

In the recent years industrial sec tor has exhibited impressive signs of recovery from a low

overall industrial growth rate (based on index of industrial production) of 2.7 per cent in

the year 2000-01 to 11.3 per cent during 2006-07. After peaking in the year 2006-07,

growth rate of the sector has dipped to 8% in 2007-08 as a result of number of adverse

factors such as rupee appreciation against dollar, increase in inflation rates, rising fuel

prices, infrastructure constraints, restrictive labour laws, of late global economic

recession etc.


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In an era of technology driven growth, very few manufacturing activities contribute significantlyto employment. The manufacturing of leather and leather product is one such sector whichcontributes considerably to employment generation in the manufacturing sector though it has ameager (1.1 per cent) weight in the Index of Industrial Production (IIP). Moreover, this sector isamong a few sectors that can benefit from globalization due to comparative cost advantages thatIndia enjoys.

Indian leather industry, provides employment to 2.5 million persons and has access to cheap rawmaterial, skilled labour, and a vibrant domestic market. Probably these are some of the importantingredients on which Indian leather industry rely on to face the challenges in the coming years.

Global players have shown considerable interest in Indian leather sector and leading leatherbrands from the US and Europe are sourcing leather and leather products from India. Thus,Indian leather industry has a significant potential to grow and to provide large-scale employmentopportunities.

1.2Chapter Scheme

This study report has been presented in six chapters. Chapter II presents an overview of leatherindustry in India. Chapter III discuss productivity perfofrmance of Indian leather & leather goodssector. Chapter IV analyses the trends in exports of leather products from India. Chapter IVanalyses the prospects of Indian leather industry in the wake of globalization and provides aSWOT analysis. Chapter V provides the feedback received from the field survey of leathermanufacturing units and other stakeholders spread across India. Chapter VI presentsrecommendations emerging from the study.

1.3Limitations & Constraints

Keeping in view of initially set scope of work that was mainly to focus the study on secondarydata sources, which has its own inherent limitations as a result of reliability in working out theprojections, in order to substantiate the secondary data field evidences have been also includedthrough a primary survey later on.

Due to the limited resources available in terms of finance, the field survey was undertaken withlimited scope and coverage. However, efforts have been made to minimize such constraints byanalyzing various data sources in order to arrive at broad recommendations for the developmentof the sector. The recommendations have been formulated considering its implementability.


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CHAPTER II

LEATHER AND LEATHER PRODUCTS SECTOR: AN OVERVIEW

2.1 Introduction

Leather industry occupies a prominent place in the Indian economy because of its massivepotential for employment, output growth and export. Currently, the industry employs about 2.5million persons of which 30% are women. Nearly, 50 per cent of the total domestic production isexported. The sector is one of the top eight foreign exchange earners of the country and accountsfor 2.5% of the global leather-related trade worth Rs. 387200 crores. In India, leather exports aregrowing at an annual rate of 5-6 per cent per annum (CII, 2006). The Indian leather industryincludes both formal as well as informal sectors from small artisans to global players andproduces a wide range of products from raw hides to fashionable shoes. Specialized institutions

like Council for Leather Exports (CLE) and Central Leather Research Institute (CLRI) have beenset up to promote the overall performance of the leather sector.

The leather industry has undergone dramatic transformation from a mere exporter of rawmaterials in the sixties to exporter of value added finished products in the nineties. The share ofvalue added finished items in the total exports from the leather sector have reached 80 percentnow against 20 percent in the 1970s. The Policy initiatives taken by the Government since 1973for the development of the sector through optimal utilization of available raw materials havebeen instrumental in the phenomenal transformation of the leather industry.

One important policy initiative taken by the government includes liberalization of the leathersector. Government has de-reserved the manufacture of various types of leather viz. semi-finished leather, harness leather, leather shoes etc., which are produced by small-scale sector.Moreover, government is setting up exclusive shoe component parks for meeting the demands ofthe global sourcing majors.

It is expected that Indian foot wear industry will grow leaps and bounds at a rate of 10% to 15%in the future years. To tap the huge domestic footwear market, branded players are establishingfootwear supermarkets in India.

2.2 Structure of Leather Industry

Important aspects of the industrial structure can be categorized into product segments andstructural components. In the following sections we analyze these two aspects separately.

2.2.1 The Product Segments


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The Indian leather industry comprising of both organized and unorganized sector,

produces wide range of leather products. The organized sector of leather products

broadly consists of tanning and dressing of leather (NIC Code- 1911), manufacturing

luggage, handbags saddlery, harness (NIC Code-1912) and footwear (NIC Code-1920).

However, the unorganized sector along with the above broad category of leatherproducts produces a number of other leather items. In order to have a clear picture of

the industry we focus on four major items produced by the Indian leather industry. These

four items constitute the various product segments of the Indian leather industry.

(a) Leather footwear(b) Leather footwear components(c) Leather garments(d) Leather goods

(a) Lea ther Foo twe a r:Am ong the ab ove m en t ioned p rod uc t seg m en t s, t he

foo tw ea r se gm e nt is the p rid e o f Ind ia n le a the r ind ustry . It ra nks se c o nd in the

w or ld , next to C hina . Ind ia is the w or ld 's sec on d la rg est p rod uc er of foo tw ea r

w ith est im a ted p rod uc t ion of m ore tha n 700 mi llion p a irs p er ann um . Foo tw ea r

a c c o unts for 18 p e rc en t sha re o f tota l exp o rts o f lea the r p ro d uc ts w o rth U.S.

$300 mi llio n p e r a nnum .

Various types of shoes produced and exported by India are dress shoes, casuals, moccasins,sports shoes, huaraches, sandals, ballerinas, and booties. Major production centers are Chennai,Delhi, Agra, Kanpur, Mumbai, Kolkatta and Jalandhar. Most of the Indian manufacturers ofmodern footwear are already supplying to major brands in Europe and USA.

In the last five years, the leather footwear and footwear component production increased by 60%.Interestingly, despite producing more of gents` footwear India is major producer of ladiesfootwear in the world.Though, the Leather Industry, (especially the Footwear industry) has madea strong contribution to the Indian economy, India's share in global trade remains as low as U.S.$ 30 billion.

Being a labor intensive industry, its contribution to employment is significant which consists of alarge chunk of illiterate workers. About 40% of employment is represented by unskilled workersindulged in table work operation in the assembly line. Minority community and lower castepeople have their sole source of livelihood from collecting carcasses, skinning dead animals andtanning leather which also consist a large proportion of employment provided by leatherindustry.


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(b) Lea ther Foo twe a r Com pon ents: Lea ther foo tw ea r c om p one n t is a no ther

im p or tant seg m ent of the Ind ia n lea ther ind ust ry . The p rod uc t ra ng e in th is

se gm e nt inc lud es sho e Up p e rs, Sa nd a l Up p e rs, Mo c c a sin La ste d Up p ers, Unit

so les, Inso le a nd Soc k Lining s et c . wh ic h a re m a inly e xp o rte d to UK, Ge rm a ny,

Ita ly, USA., Fra nc e , Po rtug a l, Sw itze rla nd , Sp a in, Ne the rla nd s a nd Au stria . The

im p ortant p rod uc t ion c ente rs for th is seg m en t a re A g ra , Am b ur, Ba ng a lore ,C hen na i, Delh i, Ja lla nd ha r, Ka np ur a nd M um b a i.

(c ) Lea ther Ga rm ents: The Lea ther Ga rm ent seg m ent o c c up ies a sig n if ic a nt

p la c e in the Ind ia n le a the r ind ustry . The p ro d uc t c la ssif ic a t io n of le a the r

g a rm e nts c om p rises of ja c kets, lo ng c o a ts, w a ist c o a ts, shirts, pa nt/ sho rt ,

c hild re n g a rm en ts, m o to rb ike ja c kets, a p ro ns a nd ind ustria l lea the r g a rm en ts.

Indian leather garments sector entered the world market in the mid-eighties. It accounts fornearly $ 300 million of exports. Germany is a major export market for leather garments. India,China and Turkey were the major suppliers of leather garments to the German market andaccounts for about 78% of the market share. Among the three major exporting nations of leathergarments, India has captured 20% of market share in both German and EU markets. Othermarkets for India are Italy, U.K., U.S.A. France, Spain and Netherlands. Denmark, Switzerlandand Canada are among latest export destinations.

(d) Leather Goods:The leather goods segment of Indian leather industry range fromdesigner collections to personal leather accessories, comprising of a wide range of

products. And its share is nearly 21 per cent in Indian leather industry. This product

segment includes the products like bags, handbags, hand gloves, industrial gloves,

wallets, ruck sacks, folios, brief cases, travel ware, belts, sports goods, upholstery

saddlery goods etc. The production of these items mainly takes place in large number of

units located in Chennai, Kanpur and Calcutta. Significant feature of this is that it

employees skilled labor and they are equipped with modern and sophisticated

machinery. This segment meets the requirements of bulk buyers and consumers in

Europe, USA and Australia.

The major market for Indian leather goods segment is Germany, with an off takeof about 25 per cent of the leather goods produced in India followed by USA,UK, France and Italy. This leather goods segment has maintained an averagegrowth rate of 11 per cent during the last five years.


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The competitive benchmarking of India has been done with C hina, Italy and Brazil to

identify the areas where India has competitive advantages and disadvantages as

compared to these countries. The exports of India have registered C AGR of 3.61% from

2000 to 2006 as compared to 10% achieved by China. While the exports of India has

registered a higher CAG R as compared to Italy and Hong Brazil which are the other two

major exporters of leather and footwear products, the analysis of the value of exports

show that the share of India in total exports of leather and leather products in world is

very low at 3.14%. The higher CAGR of India can also be attributed to lower exports in

absolute terms in 2001 as compared to Brazil and Italy.

The labour productivity index of India is among the lowest in the Asian Countries at 0.94

in 2005 as per the study conduc ted by Asian Productivity Organisation (APO). Mongolia

and China have the highest labour productivity index at 1.65 and 1.56 in 2005. The

labour productivity in India is very low as compared to China in production of shoes,garments and leather goods. The pairs of shoes per employee per day in India are 20

pairs as compared to China which was at 40 pairs. Similarly, the pieces of leather goods

per employee per day in India are low at 6-8 pieces as compared to China at 12-15

pieces. The labour productivity of India has been impacted due to rigid labour laws like

lack of flexibility in contract labour laws. Units employing over 100 people currently fall

under the purview of Industrial Disputes Act. The Act stipulates that employers must

obtain necessary approvals to effect lay-offs. This proves to be a hindrance especially

for small and medium enterprises.

2.5 Measures for Anti Dumping by Companies in India

As in most other countries, protection appears to have been the dominant motivation behind thelevying of anti dumping duties in India. General Agreement on Tariffs and Trade (GATT)therefore contains some contingent measures, which permit the signatories to withdraw theirnormal obligations under specified circumstances and impose higher protection against import ofone or more goods from one or more countries. Contingent protection measures fall under threecategories -- antidumping, countervailing and safeguard measures.

Anti-dumping duties are expected to overcome only the problem of dumping. To deal with theproblem of direct and indirect Government subsidies there is provision for countervailing duties.In both cases injury and causal link must necessarily be proved. Safeguard measures dealing withthe problem of "increased imports" and neither dumping nor subsidies need be present. Forsafeguard measures to be implemented serious injury to the domestic industry is required to beestablished. Some safeguard measures are tariff increases or quantitative restrictions; it remains asparingly used measure, as compensation may have to be paid to the trading partners inappropriate cases.


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The subject of anti dumping is very topical and highly controversial. There seems to be someambiguity in the definition of trade-distorting phenomenon ''dumping''. A product is said to havebeen dumped in the Indian market if it is introduced into the commerce of the country at lessthan the normal value of the product and it causes/threatens material injury to an establishedindustry of the country. The phenomenon of dumping is per se not condemnable as it is

recognized that producers sell their goods at different prices to different market. Differences inprice are also due to demand and supply. Export prices are generally lower than domestic prices.However, where dumping causes or threatens to cause material injury to the domestic industry ofIndia, the Authority (Ministry of Finance) initiates necessary action for investigations andsubsequent imposition of anti-dumping duties. Normal Value is the comparable price at whichthe goods are sold, in the ordinary course of trade. The Normal Value cannot be determined bymeans of domestic sales. The act provides for the following two alternative methods.

1. Comparable representative Export Price to an appropriate third country.

2. Cost of production in the country of origin with reasonable addition for administrative,

selling and general costs and for profits.

The 'Margin of Dumping' is generally expressed as a percentage of the Export Price. It refers tothe difference between the Normal Value of the similar article and the Export Price.Article VI of the GATT states the measure to prevent dumping. Most WTO member countrieshave adopted/amended their antidumping legislation largely in accordance with the GATTprovisions to deal with dumped imports. Pursuant to GATT 1994 detailed guidelines have beenprescribed under the specific agreements which have also been incorporated in the nationallegislations of the member countries of the WTO.

Since 1-1-95 Indian Laws have been amended in order to bring them in line with the provisionsof the respective GATT agreements. Sections 9A, 9B and 9C of the Customs Tariff Act, 1975

and the corresponding Customs Tariff (Identification, Assessment and Collection of Anti-Dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995 there underform the legal basis for anti-dumping investigations and for the levy of anti-dumping duties.Some have raised questions about the ambiguities in antidumping regulations and procedures;others have questioned the economic rationale behind such laws.

Imposition of Anti Dumping Duty is based on commodity to commodity, country to country andsuppliers in exporting countries. Global Trade Protection (GTP) report has reported that globalanti-dumping activity has remained at relatively low levels in 2005 and 2006. The reason beingthat commodity type prices remain relatively high etc., a) less dumping is taking place and b) itcan be difficult to establish that domestic industries are injured. Despite the relatively low levels

of anti-dumping activity worldwide. In India, the numbers of anti-dumping cases have increasedsubstantially over the last five years.

China continued to be the main target of anti-dumping cases in the recent years. Interesting tonote, is the fact that there is a significant upward trend towards China as a target. The proportionof global anti-dumping initiations against China has been significantly increasing in recent years.The Global Trade Protection Report has found that global trade protection activity in the first sixmonths of 2007 was at a record low since the creation of the WTO.


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The GATT agreement as well as the Indian laws provides that the injured domestic industry isallowed to file for relief under the anti-dumping as well as countervailing duties. However, thesame articles shall not be subjected to both countervailing and anti-dumping duties tocompensate for the same situation of dumping or export subsidization.

The investigation process involves the following steps:

1. Screening - the document is scrutinized and if the evidence is not adequate, then a

deficiency letter is issued normally within 20 days of the receipt of the application.

2. Initiation - Public Notice is issued initiating an investigation to determine the existence and

effect of the alleged dumping. The Designated Authority notifies the diplomatic

representative of the Government of the exporting country before proceeding to initiate the

investigation, within 45 days of the date of receipt of a properly documented application.

3. Access to information - Non-confidential evidence is provided.

4. Preliminary Findings - in appropriate cases, finding containing the detailed information onthe main reasons behind the determination within 150 days of initiation.

5. Provisional Duty - not exceeding the margin of dumping, but only after the expiry of 60 days

from the date of initiation of investigation and will remain in force only for a period not

exceeding 6 months, extendable to 9 months

6. Oral Evidence - request to opportunity to present the relevant information orally, but

subsequently it must be reproduced in writing.

7. Final Determination - within 150 days of the date of preliminary determination.

8. Disclosure of Information - interested parties must be informed of the essential facts which

form the basis for its decision before the final finding is made.

9. Time-limit for Investigation Process - one year from the date of initiation of the

investigation, but maybe extended for an additional six months.

10.Termination - under specified cases.

A retrospective application will not go beyond 90 days of the date of imposition of provisional

duty. An anti-dumping duty imposed under the Act shall have the effect for 5 years from the dateof imposition, unless revoked earlier. An appeal against the order of the Designated Authoritymay be filed with the Customs, Excise and Gold (Control) Appellate Tribunal within 90 days ofthe date of the order. The Legislation provides for the collection and refund of duty.

Another aspect of dumping which is not altogether trivial is the fact that, against the backgroundof a once hungry-for-imported-goods country, countries try to sell, and mostly succeed in selling,to India goods which would not be saleable in their own countries mainly by virtue of quality


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and age -- time elapsed and time remaining in relation to manufacturing date. It appears thatthere are no barriers in India at which these types of goods are stopped and checked.

2.5.1 Chinese footwear remains controversial in EU

In October 2008, the European Union (EU) initiated an expiry review of anti-dumping duties on

footwear with leather uppers from China. EU anti-dumping measures are normally adopted for a5 year period. However, due to the extremely political nature of the footwear anti-dumpinginvestigation, measures in this case were exceptionally adopted for only 2 years. This reflectedthe fact that there was a large involvement of retailers and importers in the investigation,significant because the EU has a public interest test (Community interest) before measures canbe adopted. The expiry review is just as controversial. Fifteen of the 27 EU Member Statesopposed the initiation of an expiry review, believing that the measures should be allowed toexpire after the 2 year duration. At initiation, the European Commission is only obliged toconsult the Member States and thus the investigation was initiated. However, if the Commissiondetermines that the measures should continue, 15 Member States would be sufficient to block thecontinuation. Ultimately, Member States must adopt the measures proposed by the Commission

and a simple majority (14) is sufficient to force the expiry of the measures. The duty remains inplace during the expiry review. The Commission stated in a press release that it would work tocomplete the review as expeditiously as possible, if possible in shorter than the usual timeframeof 12-15 months.

2.6 The Regulatory Regime

The continuous support of the Government has resulted in massive transformation of the Indianleather and leather products sector. As maintained earlier, the industry which was a mereexporter of raw material in the sixties has now become one of the major exporters of the valueadded finished products.

Recognizing the opportunities for Indian leather industry from globalization, the governmentover the last decade and a half has under taken several initiatives. Those initiatives may bebroadly divided into two categories. One is competitiveness enhancing initiatives (those, directlyaffect the competitiveness) and the other is the trade facilitating initiatives (those affect theexports). Of course, the trade facilitating initiatives also affect the overall competitiveness of theindustry, but they affect indirectly. Nevertheless, it is important to have a discussion of thesebroad categories of initiatives undertaken by the government to improve the performance of theleather industry in India.

2.6.1 Competitiveness Enhancing Initiatives

The government over the last decade and a half has undertaken various measures in order toenhance the competitiveness of leather industry in India. Some of the important measures are bethe followings. Firstly, as a part of the liberalization measures, most of the items of manufacturein the leather sector have been de-licensed. And the Government has de-reserved themanufacture of various types of leather including semi-finished leather, harness leather, leathershoes etc. from small-scale sector.


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Secondly, National Leather Development Programme (NLDP) was implemented from April1992 to September 1998 with the assistance from UNDP. The programme aimed at integrateddevelopment of the leather industry through selected institutions/agencies in the country.

The programme was successful in creating institutional facilities of international standards andcapacity to meet the requirements of trained man-power. In order to consolidate the gains of this

project and in line with sustainable human development concerns, Phase-II of the programme,namely, SIDE-NLDP (Small Industries and Development and Employment Programme inleather sector) was launched with UNDP assistance of US $ 7 million in September, 1998.

Thirdly, the Indian Leather Development Programme (ILDP) was implemented as one of theNinth Plan programmes to complement NLDP. The objectives of the ILDP were mainly tobridge critical gaps in the infrastructure for integrated development of the leather industry,activate national agencies towards tackling gaps in the industry, to promote productivity, valueaddition, encourage investment, trade development and building up of information base for theleather industry.

Fourthly, National Leather Technology Mission (NLTM) was launched in 1995 for integrateddevelopment of tanning sector. The programme mainly focused on areas like augmentation ofraw material requirements of the leather industry and promotion of environmentally cleanerleather processing methods through use of modern technology. NLTM had a total of 172activities covering 16 states in the country. In fact, the support for tannery modernisation wasgiven a very high priority under all the aforesaid programmes.

Fifthly, on June 30, 2005, the Cabinet Committee on Economic Affairs (CCEA) had decided toimplement Rs 2.9 billion scheme for the integrated development of the leather sector. Under thisscheme, modernization of existing tanneries and setting up of new units for footwear,components and leather products were planned. This scheme is expected to result in gains interms of productivity, right-sizing of capacity, cost-cutting, and design-development.

Apart from the above initiatives which have direct implications for the competitiveness of Indianleather industry, the government has undertaken several other initiatives in the recent yearswhich are basically trade facilitating in nature i.e. they aim at improving the prospects of exportfor Indian leather goods.

2.6.2 Trade Facilitating Initiatives

National Foreign Trade Policy (FTP) 2004-09 is perhaps one of the major initiatives which aimsat improving export prospects of Indian industries in general. However, some of its componentsgrossly address the trade concerns of the Indian leather industry in particular. Apart from thosesubcomponents, there are various other steps which the government has undertaken in recentyears in order to improve the export prospects of Indian leather goods. The followings could be


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considered as some of the important trade facilitating initiatives of the government in the recentyears.

Firstly, FTP 2004-09 primarily focuses on procedural simplification and trade facilitationmeasures. As a result several schemes which were hitherto un-availed by the exporter haveturned out to be attractive.

Secondly, the formation of Inter-State Trade Council to facilitate an enabling coordinationbetween the Central and State Governments in trade policy matters is a very significant steptowards increasing export of Indian industries in general and leather industries in particular.

Thirdly, the Export Promotion Capital Goods Scheme ( EPCG) scheme has been made furtherattractive to the SSI sector, as the export obligation has been brought down from 8 times of dutysaved to 6 times and procedures for availing the EPCG scheme has been simplified.

Fourthly, the Advance License scheme has also been made more attractive with the introduction

of various procedural simplification measure, more particularly, all categories of exportershaving past export performance can now avail the Advance License for annual requirement,instead of the earlier practice of restricting the facility to only status holders. Similarly, thespecial facility introduced to the Status Holders in the erstwhile EXIM Policy 2003-04 has alsonow been operationalized. The schemes would definitely incentivise the industry to aim ataggressive growth.

Fifthly, a single common form called Aayaat Niryaat Form has been introduced which is a 50page set of forms as against the earlier 120 page set.

Sixthly, the export obligation on production of goods reserved for the small scale sector in theorganized sector has been brought down from 75 percent to 50 percent to encourage exportswhile providing a reasonable safeguard to the small scale and cottage sector. Non-SSI units can,however, take up manufacture of finished leather from semi-finished stage without any exportobligation.

Seventhly, the government has allowed the import of raw materials and machinery andcomponents under Open General License (OGL) at concessional rates of duty.

Eighthly, government has made efforts to encourage domestic manufacturer of components bypromoting joint ventures and by duty rationalization on inputs.

Ninthly, the product segments like tanned/dressed fur skins and chamois leather has beenremoved from the list of industries requiring compulsory licensing.


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Tenthly, in tune with the growing demand for footwear, the government is setting up exclusiveshoe component parks for meeting the demands of the global sourcing majors.

Finally, the Prime Minister has recently approved development of leather sector under theMission Mode, since various ministries like the Animal Husbandry, Rural development,commerce and industries, Finance etc are involved in the development of this sector. Consequent

upon the approval of the Mission Mode, the Planning Commission has constituted an InterMinisterial Committee so that the inter-ministerial issues could be sorted out in a single forum.

With all such pro-active policy initiatives undertaken by the government in recent years, it isexpected that the share of Indian leather industry in the global leather trade will increase from thepresent 2.32% to 4.2% by 2010, thereby its exports in value terms will enhance from the presentRs.10000 to Rs.20000 crore, and in the process the industry will provide an additionalemployment to about one million people. However, the Expectations would get translated intoreality if and only if the Indian leather industry grows significantly in the coming years. In anera of globalization there are two important things which govern the growth. One is theopportunity available from the globalization and the other is the competitive potential of the

industry to capitalize the opportunity. Therefore, it is pertinent to analyse the prospects for Indianleather industries from globalization.


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CHAPTER III

PRODUCTIVITY OF LEATHER & LEATHER PRODUCTS SECTOR

3.1 Introduction

This chapter analyses productivity performance of organized registered manufactures. Theorganized factory sector occupies an important position in leather production in India.* Thoughits share is less in comparison to unorganized sector, its importance cannot be under estimated.Structurally, the organized factory sector consists of both small scale and large-scale registeredenterprises. The developments in the organized factory sector are easily visible and theimplications of government policy (both domestic and global) can be easily assessed since the

data are available on a continuous time series Considering these facts an attempt has been madein the following sections to analyse the leather industry (organized factory sector/ registeredmanufacturing) in India.

3.2 The Key Features of the Registered Factory Sector

A brief look at the leather sector (registered manufacturing) at the all India level suggests that the industry has not

experienced any significant growth in terms of Gross Value Added the years (Table 3.1). However, compound annual

growth rate of employment during 1980-81 to 2005-06 has shown positive trends at an annual rate of 2.36 per cent. By

1990-91 total employment, value of output and value added declined in absolute terms as compared to 1980-81 levels.

In the 1990s however, the industry has recovered. A comparison between the levels of2000-01 and 2005-06 reveals that the value added and value of output has started

showing signs of recovery (Table 3.1). The number of workers and the number of

fac tories have also increased considerably during this period.

Thus, the above analysis suggests that the organized leather industry in India has started showing signs of growth in the

recent years as compared to nineties. This probably indicates that the measures adopted during economic liberalization

did help the organized segment of leather manufacturing in India.

*(Factory is one that is registered under sections 2m (i) and 2m (ii) of the Factories Act, 1948. The

sections 2m (i) and 2m (ii) refer to any premises including the precincts thereof (a) whereon ten

or more workers are working, or were working on any day of the preceding twelve months, and

in any part of which a manufacturing process is being carried on with the aid of power, or is

ordinarily so carried on; or (b) whereon twenty or more workers are working or were working on


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any day of the preceding twelve months, and in any part of which a manufacturing process is

being carried on without the aid of power, or is ordinarily so carried on).


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Table 3.1: Characteristics of Registered Leather Industry in India (Value in Rs. Lakhs, others in Numbers)

Source: Computed from Annual Survey of Industries, CSO, Summary results of Factory

Sector

3.3 Data and Variables

Gross value added (net value added + depreciation) has been considered for the estimation ofproductivity ratios. In order to eliminate the price effect from the increasing value added, thegross value added figures have been deflated by using the whole-sale Price Index (WPI). Fromthe WPI, the price index for the leather and leather products at 1993-94 base prices has beentaken into account for deflating the data on gross value added since it covers all categories of theproducts from the sector.

3.4 Growth Rate Analysis of Leather Industry

A period wise growth ana lysis of the organized lea ther industry in India has been presented in table 3.2

Indicators1980-

81

1990-

91

2000-

01

2003-

042004-05

2005-

06

Number of Factories 1298 1782 2378 2337 2293 2444

Number of Workers 97305 92915 114467 118154 126604 146704

Gross Value Added(Constant Prices 1993-94=100)

138897 127438 88996 92673 87899 117894

Value of Output (ConstantPrices 1993-94=100)

718276 407316 637945 649808 657968 783405


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Table 3.2: Growth of Organized Leather Industry

Period I

(1980-81 to

1990-91)

Period II

(1990-91 to

2000-01)

Period III

(2000-01 to

2005-06)

Indicators

Compound Annual Growth Rate (CAGR) (%)

Gross Value Added (At Constant

Prices)-0.86 -4.39 5.79

Value of Output (At Constant Prices) -5.51 5.77 4.19

No. of Fac tories (Nos) 3.22 3.67 0.55

Workers (Nos) -0.46 2.64 5.09

Note: Labour Productivity has been estimated as GVA/Number of Workers

Source: C omputed from Annual Survey of Industries, CSO, Summary results of Factory

Sector

Value of Output (at constant prices) has been found increasing continuously during the liberalization period. Though

eighties was a decade of better industrial growth, the leather industry did not perform well resulting in negative growth

rates. Nevertheless, the sector has experienced a great deal of recovery in the decade and a half of liberalization.

Internal liberalisation and trade reforms have certainly helped the leather industry to gain some market share in the

world market. However, the extent to which Indian leather industry can survive or grow or emerge as a leader dependson its competitive potential. Since, the leather industry, be it organized or unorganized, across the globe is basically

labour intensive, the improvement in labour productivity will primarily govern the competitiveness of the sector.

3.5 Labour Productivity Growth

Table 3.2has given an overall picture of labour productivity growth in the leather industry. However, it is pertinent to

have a look at the labour productivity across various broad segments of the leather industry in India. Labour productivity

growth across different segments of leather industry has been p resented in table 3.3.


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Table 3.3: Labour Productivity Growth in Indian Leather Industry: Segmentwise Analysis

IndustryCode

Period I:

1980-81 to

1989-90

Period II:

1990-91 to 1999-

00

Period III:

2000-01 to 2004-

05

Tanning andDressing ofLeather

1911 -1.39 4.99 3.79

Manufacture of

Luggage,

Handbags, and

the like, Saddlery

and Harness

1912 11.76 4.70 0.36

Manufacture of

Footwear 1920 -11.20 4.33 -4.95

Entire Leather

Industry

1911+1912+19

20-9.40 4.36 -2.31

Note: Labour Productivity has been estimated as GVA/Number of workers

Source: Computed from Annual Survey of Industries, CSO, Summary results of Factory

Sector

It may be seen from tables 3.3 that labour productivity in different segments of the leather industry has been growing

consistently since 1990-91. Of course, the only exception has been the manufacture of Luggage, Handbags and the like,

Saddlery etc. Unlike other sectors it did not experience negative growth in labour productivity in the eighties. And also

this segment had experienced a decline in growth rate during nineties while all other segments improved in terms of

labour productivity growth. Interestingly, this sec tor exhibits the highest growth in labour produc tivity in the recent yea rs.

The contrasting performance of manufacture of Luggage, Handbags and the like, Saddlery etc. among other segments

the leather industry in India could be due to the fact that this segment prominently focus on the domestic market.

In the recent years, riding on domestic growth and opportunities of globalization, various segments of Indian leather

industry have started performing well, particularly in terms of growth in labour produc tivity. However, the major concern

is that the footwear sector, the pride of Indian leather industry in the global market trails behind other segments in terms

of labour productivity growth.

Hence, in order to enhance the competitive edge of the leather industry, it is important thatlabour productivity need to be improved considerably across all segments of the industryespecially for the footwear segment.

A recent study on labour intensity and employment potential of Indian manufacturing (ICRIER,2008) estimates employment growth in this sector. The study reports consistent decline in


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employment from around 19 percent ( 1990-95) to about 5 percent (2000-2003). In addition, theL/K ratio is also seen declining- 1.27(1990-95), 0.89(1996-99) and 0.58 (2000-03).

3.6 Partial and Total Factor Productivity Analysis of Leather Industry

In this section we analyse partial productivities (labour and capital) and total factor

productivity growth (TFPG). The detailed methodology adopted for the estimation of

partial (labour & capital) and TFPG are given in Annexure 3. The estimated partial

productivity ratios for both labour and capital factor inputs are given in table 3.4.

Table 3.4: Productivity Estimates for Labour and Capital inputs

YearCapital productivity

(at Per Rupee Invested)

Labour Productivity

(at Per Person Employed)

1995-96 0.64 60976

1996-97 0.63 64866

1997-98 0.83 79710

1998-99 0.62 79748

1999-00 0.68 88107

2000-01 0.49 64385

2001-02 0.64 70170

2002-03 0.66 60553

2003-04 0.75 63490

2004-05 0.73 58647

2005-06 0.84 67797

Note: Productivity has been estimated as GVA/ Fac tor imput

Source: Estimated from ASI- Summary results of factory sec tor, CSO.


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From table 3.4 it may be noted that partial productivity estimations for labour and

capital productivity at the all India level have reported wide fluctuations during 1995-96

to 2005-06 period. Capital productivity was found fluctuating in the range of Rs. 0.49 to

Rs. 0.84 while labour productivity was found in the range of Rs. 58647 to Rs. 88107 during

1995-96 to 2005-06.

Table 3.5provides year on year growth rate estimations for capital, labour and total

factor productivity growth. It may be noted that capital productivity growth during

1995-96 to 2000-01 was quite negligible while 2000-01 to 2005-06 period exhibited

negative growth at the rate of -5% per annum. However, labour producyivity growth

reported positive growth for both periods at 2% and 1% respectively. In the case of Total

Factor Productivity Growth we find annual average growth rate at 1% during 1995-96 to

2000-01 and 2% during 2000-01 to 2005-06.


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Table 3.5: Labour, Capital and Total Factor Productivity Growth (%)

Year

Capital

Productivity

Growth

Labour

Productivity

Growth

Total factor

Productivity

Growth

1995-96 -- -- --

1996-97 -1.93 6.38 0.99

1997-98 31.82 22.88 -9.51

1998-99 -25.55 0.05 14.52

1999-00 9.25 10.48 -3.79

2000-01 -27.55 -26.92 10.80

2001-02 30.36 8.98 -19.71

2002-03 2.81 -13.70 8.21

2003-04 14.57 4.85 -4.39

2004-05 -2.84 -7.63 3.75

2005-06 14.40 15.60 14.46

Average for thePeriod 1996-97 to

2000-01 -2.79 2.57 2.60

Average for the

Period 2000-01 to

2005-06 5.23 0.34 4.93

Source: Computed from Annual Survey of Industries, CSO, Summary results of

Factory Sector

Since the annual growth rates exhibit wide fluctuations, for getting a better picture of

the growth rate analysis it has been depicted in an index form in table 3.6. Among the

three growth rates capital productivity has reported the highest index at 145.34 by

2005-06, while labour productivity has reported 120.97 and Total Factor Productivity has

grown to 115.33.


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Table 3.6: Index of Labour, Capital and Total Factor Productivity Growth Rates

Year Capital Labour

Total factor

Productivity

Growth Index


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Source: C omputed from Annual Survey of Industries, CSO, Summary results of Factory

Sector

Though TFP is lower as compared to Capital and Labour Productivity Growth, it may be

noted that technology plays a significant role in the growth of leather and leather

products sector in India. Therefore, it may be noted that technology upgradation

schemes are vital for making the sector more productive and competitive in the global

setting.

Index of Labour, Capital and Total Factor Productivity Growth Rates

1995-96 100.00 100.00 100.00

1996-97 98.07 106.38 100.99

1997-98 129.89 129.26 91.48

1998-99 104.34 129.31 106.00

1999-00 113.59 139.79 102.21

2000-01 86.04 112.87 113.01

2001-02 116.40 121.85 93.30

2002-03 119.21 108.15 101.51

2003-04 133.78 113.00 97.12

2004-05 130.94 105.37 100.87

2005-06 145.34 120.97 115.33


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CHAPTER IV

EXPORT TRENDS IN LEATHER AND LEATHER PRODUCTS

4.1 Introduction

The importance of exports in the growth of an industry cannot be underestimated in the

era of globalization. The exports of leather and leather products to the rest of the world

have registered a steady increase over the years as it increased from 1279.19 million US

$ in 1991-92 to 3433.30 million US $ by 2007-08 (Table 4.1).

The global trade in leather and footwear is expected to further increase after the

abolition of quota regime in J anuary, 2005. The relative shares of the components havechanged over the years. The share of leather footwear has declined over the years

from 36.56% to 33.92% and even the share of saddlery and harness has registered a

small increase over the years from 1.20% in 1995-96 to 3.08% in 2007-08. The shares of

leather garments and leather footwear components have registered a steep decline

over the years and the share of finished leather and leather goods has declined

marginally in the past few years but ultimately increased in 2007-08 as compared to

1995-96.

Table 4.1: Composition of Indias Leather Exports: 1991-92 to 2007-08

US $ MillionProduct

Categories 1991-92 1995-96 2000-01 2003-04 2005-06 2006-07 2007-08

Leather footwear 467.26 340.92 381.99 553.42 786.65 950.90 1164.39

S hare %36.56

19.42 19.61 25.56 29.96 31.89 33.92

Leather goods 810.93 363.14 441.09 539.58 649.04 690.66 785.33

Share % 63.44 20.69 22.65 24.92 24.72 23.16 22.87

Finished leather -- 371.85 382.11 556.09 605.97 688.35 767.31

Share % -- 21.18 19.61 25.69 23.08 23.09 22.35


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Table 4.2: Direction of Indias Leather Exports: 1991-92 to 2007-08

US$ Million

Country

1991-92 1995-96 2000-01

2003-

04 2005-06 2006-07 2007-08

Germany 280.92 400.62 306.02 322.18 357.20 397.94 486.91

Share % 21.92 22.83 15.71 14.88 13.24 13.58 18.77

UK 146.01 197.89 265.88 238.1 335.61 349.24 407.64

Share % 11.42 11.27 13.65 11 12.44 11.92 15.71

USA 177.54 295.05 342.83 245.24 310.40 302.79 304.30

Share % 13.88 16.81 17.60 11.33 11.51 10.33 11.72

Italy 124.38 221.05 238.87 277.2 308.61 395.03 475.60

Share % 9.73 12.59 12.26 12.80 11.44 13.48 18.33

Hong Kong 30.55 59.5 98.37 227.06 251.42 265.09 267.99

Share % 2.39 3.39 5.05 10.49 9.32 9.04 10.33

Spain 27.88 50.79 100.33 158.43 198.60 179.62 210.42

Share % 2.18 2.89 5.15 7.31 7.36 6.13 8.107.

France 61.7 88.54 88.67 107.65 140.73 168.18 194.27

Share % 4.82 5.04 4.55 4.97 5.22 5.74 7.49

Netherlands 21.81 38.42 55.52 57.01 81.94 97.68 133.10

Share % 1.70 2.18 2.85 2.63 3.04 3.33 5.13

UAE 5.99 12.23 17.96 34.73 48.48 53.62 64.87

Share % 0.46 0.69 0.92 1.65 1.80 1.83 2.50

Australia 25.04 40.42 27.95 31.56 42.80 37.82 49.52

Share % 1.95 2.30 1.43 1.45 1.59 1.29 1.91


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Other

countries 376.38 350.33 405.21 465.35 -- -- --

Share % 29.44 19.96 20.80 21.49 -- -- --

World Total 1278.2 1754.84 1947.61 2164.51 2075.79 2247.01 2594.52

Source: Foreign Trade and Balance of Payments, CMIE (various issues), AnnualReport DIPP, Ministry of Commerce & Industry (various issues)

4.2 Export of Finished Leather

Indias export of finished leather has been growing at the annual rate of 6.42% from

1993-94 to 2007-08. Table 4.3provides the direction of trade with respect to finished

leather products from India. Hong Kong is one of the major export destinations of Indias

finished leather products. Hong Kong cornered the largest share (42.25%) of Indias

finished leather exports in 2007-08. There has been a rise in both absolute and relative

shares of most of countries in exports of Indias finished leather except USA, Germany,

France and Spain have registered a marginal fall in recent years. Also, volume of

imports by Germany, France and USA has decreased over the years.


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Table 4.3: Indias exports of finished leather: Destination wise (US$ Million)

Country

1993-

94 1997-98 2000-01 2003-04 2005-06 2006-07 2007-08

Hong Kong 45.93 47.75 90.43 199.5 242.91 257.65 256.21

Share % 17.01 16.12 23.66 35.87 38.18 37.47 42.25

Italy 56.73 64.46 85.7 85.68 86.19 115.44 133.53

Share % 21.01 21.76 22.42 15.40 13.55 16.79 22.02

China 3.53 3.18 8.41 21.61 34.86 37.20 48.25

Share % 1.30 1.07 2.20 3.88 5.48 5.41 7.95

Germany 26.58 29.37 20.96 22.78 34.56 24.20 32.73

Share % 9.84 9.84 5.48 4.09 5.43 3.52 5.39

Korea Republic 3 2.96 15.66 24.3 33.51 33.14 27.64

Share % 1.11 0.99 4.09 4.36 5.27 4.82 4.55

Spain 15.82 26.71 29.94 35.97 22.53 20.56 26.62

Share % 5.85 9.01 7.83 6.46 3.62 3.43 4.38

Vietnam -- 0.68 2.27 22.06 23.03 23.57 34.53

Share % -- 0.22 0.59 3.96 3.62 3.43 5.69

Malaysia 1.25 3.29 3.3 7.52 13.51 22.60 29.00

Share % 0.46 1.11 0.86 1.35 2.12 3.29 4.78

France 13.67 16.34 13.4 15.28 13.09 11.49 9.74

Share % 5.06 5.51 3.50 2.74 2.06 1.67 1.66

USA 16.96 10.9 12.43 7.87 12.24 9.68 8.22

Share % 6.28 3.68 3.25 1.41 1.92 1.41 1.36

Other countries 86.52 90.55 99.61 113.52 -- -- --


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Source: Foreign Trade and Balance of Payments, CMIE (various issues), Annual

Report DIPP, Ministry of Commerce & Industry (various issues)

4.3 Export of Leather Footwear

Indias export of leather footwear has been growing at the rate of 3.50% during1991-92 to 2007-08. The leading importer of Indian leather footwear product is UKfollowed by Germany, USA, Italy and France (Table 4.4). The volume of importsby all the major countries has been increasing over time. The share of UK has

been dec lining since 2000-01 showing a slight increase in recent years. Still it is amajor importer of Indias leather footwear. The shares of USA has been decliningin Indias leather footwear exports while Germanys share has increasedmarginally. Italy, France, Spain, Netherlands, Belgium and UAE have increasedtheir relative shares in Indias exports of leather footwear.

Table 4.4: Indias exports of leather footwear: Destination wise (US $ Million)

Share % 32.04 30.57 26.06 20.41 -- -- --

World Total 269.99 296.19 382.11 556.09 516.09 555.53 606.47

Country 1991-92 1995-96 2000-01 2003-04 2005-06 2006-07 2007-08

UK 54.18 56.31 100.82 124.62 164.15 188.04 215.92

Share % 11.59 16.51 26.39 22.51 20.78 20.52 21.93

Germany 80.45 67.56 48.89 110.81 140.85 174.47 203.43

Share % 17.21 19.81 12.79 20.02 17.44 19.04 20.66

USA 81.33 97.21 104.09 80.7 121.14 116.40 131.61

Share % 17.4 28.51 27.24 14.58 15.00 12.70 13.37

Italy 40.65 8.28 12.83 58.27 91.00 130.75 166.27

Share % 8.69 2.42 3.35 10.52 11.28 14.27 16.89

France 13.99 11.2 19.49 37.68 56.93 74.28 86.77

Share % 2.99 3.28 5.1 6.8 7.05 8.11 8.81


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Source: Foreign Trade and Balance of Payments, CMIE (various issues), Annual Report DIPP,Ministry of Commerce & Industry (various issues)

4.4 Export of Leather Goods

Indias export of leather goods have been decreasing at the rate of 1.58%during 1991-92 to 2007-08 periods.Table 4.5provides the direction of trade withrespect to leather goods from India. Germanys position as the major destinationof Indias leather goods exports during the early 90s has changed drastically. Itwas displaced by UK as the leading importer of Indias leather goods. Theimports by Germany, Italy and France have increased recently from 2006-07

to2007-08 but finally have shown a dec rease in absolute terms along their shareswhen compared with 1991-92. USA, Spain, Netherlands, Australia, UAE andBelgium have increased their imports from India in absolute as well as relativeterms.

Spain 0.72 1 3.87 19.53 43.27 46.07 56.22

Share % 0.15 0.29 1.01 3.52 5.36 5.03 5.71

Netherlands 3.78 5.95 11.16 17.61 29.51 43.35 69.34

Share % 0.8 1.74 2.92 3.18 3.65 4.73 7.04

Belgium 3.64 1.76 5.04 8.13 20.08 20.94 29.30

Share % 0.77 0.51 1.31 1.46 2.49 2.28 2.98

UAE 2.92 5.49 8.62 11.66 19.99 22.07 25.73

Share % 0.62 1.61 2.25 2.1 2.47 2.41 2.61

Denmark 11.98 2.6 4.83 10.55 16.01 13.29 --

Share % 2.56 0.76 1.26 1.9 1.98 1.45 --

Other

countries 173.62 83.56 62.35 73.86 -- -- --

Share % 37.15 24.51 16.32 13.34 -- -- --

World Total 567.19 440.87 481.93 653.35 789.97 916.43 984.59


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Table 4.5: Indias Exports of Leather Goods: Destination wise (US $ Million)

Country 1991-92 1995-96 2000-01 2003-04 2005-06 2006-07 2007-08

USA 96.21 78.37 107.89 98.87 116.00 124.30 121.43

Share % 11.86 21.58 24.45 18.32 17.57 18.01 19.35

UK 91.83 33.86 46.14 63.59 110.60 111.25 131.62

Share % 11.32 9.32 10.46 11.78 16.76 16.12 20.97

Germany 199.8 117.25 85.95 92.38 91.07 99.12 121.43

Share % 24.63 32.28 19.48 17.12 13.80 14.34 19.35

Spain 27.15 8.83 18.26 40.03 51.19 52.18 59.14

Share % 3.34 2.43 4.13 7.41 7.76 7.56 9.42

Italy 83.75 13.68 23.72 36.61 46.32 49.72 56.27

Share % 10.32 3.76 5.37 6.78 7.02 7.20 8.97

Netherlands 18.03 14.08 19.88 22.32 30.68 31.43 36.13

Share % 2.22 3.87 4.50 4.13 4.65 4.55 5.76

France 47.7 14.83 19.36 22.19 26.56 30.75 34.91

Share % 5.88 4.08 4.38 4.11 4.02 4.46 5.56

Australia 17.78 15.8 10.96 16.99 25.62 21.28 27.96

Share % 2.19 4.35 2.48 3.14 3.88 3.08 4.46

UAE 3.06 3.49 6.46 16.68 22.68 21.02 25.10

Share % 0.37 0.96 1.46 3.09 3.44 3.04 4.00

Belgium 6.13 5.91 6.97 9.24 10.25 11.51 13.54

Share % 0.75 1.62 1.58 1.71 1.55 1.67 2.16

Other countries 219.49 57.04 95.5 120.68 -- --


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Share % 27.06 15.70 21.65 22.36 -- --

World Total 810.93 363.14 441.09 539.58 660.07 690.19 627.53

Source: Foreign Trade and Balance of Payments, CMIE (various issues), Annual ReportDIPP, Ministry of Commerce & Industry (various issues)

4.5 Export of Leather Garments

Indias export of leather garments have been decreasing at a rate of 2.46% during

1995-96 to 2007-08. Table 4.6 provides the direction of trade with respect to leather

garments from India. Germany is the leading importer of leather garments in 2008-09.

Germany, Italy, USA, France, UK and Netherlands have all started importing less of

Indian leather garments over the years. USAs import from India increased once during

2000-01 otherwise it has dec lined over the period. Surprisingly, Spain and Canada hasexperienced drastic increase in exports from India in this sector.

Table 4.6: Indias exports of leather garments: Destination wise (US$ Million)

Country 1995-96 1998-99 2000-01 2003-04 2005-06 2006-07 2007-08

Spain 5.47 19.82 40.07 45.36 60.2 42.91 47.61

Share % 1.32 5.18 8.68 15.05 18.06 13.9 17.12

Germany 122.05 114.76 93.88 57.67 55.67 53 68.81

Share % 29.46 30.04 20.35 19.14 16.71 17.17 24.75

Italy 68.21 60.7 54.27 53.49 47.36 52.3 58.34

Share % 16.46 15.72 11.76 17.75 14.21 16.64 20.98

USA 73.53 47.02 102.58 46.86 45.11 36.72 27.75

Share % 17.75 12.31 22.24 15.55 13.54 11.89 9.98

France 32.67 28.12 24.81 16.8 22.78 23.34 27.11


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Share % 7.88 7.36 5.37 5.57 6.84 7.56 9.75

UK 41.21 38.81 54.31 23.18 21.41 22.39 23.10

Share % 9.94 10.16 11.77 7.69 6.42 7.25 8.31

Canada 2.8 3.29 8.34 5.93 10.06 8.53 8.94

Share % 0.67 0.86 1.8 1.96 3.02 2.76 3.22

Denmark 9.08 9.22 15.77 4.77 10.15 11.32

Share % 2.19 2.41 3.41 1.58 3.05 3.67

Netherlands 13.57 16.16 14.32 7.33 8.94 10.89 11.26

Share % 3.27 4.23 3.1 2.43 2.68 3.53 4.05

Belgium 2.12 2.99 2.19 4.04 6.06 5.14 5.11

Share % 0.51 0.78 0.47 1.34 1.82 1.67 1.84

Other

countries 43.5 41.05 50.67 35.86 -- -- 47.61

Share % 10.5 10.74 10.98 11.9 -- -- 17.12

World Total 414.21 381.94 461.21 301.29 333.25 308.78 278.03


4.6 Export of Leather Footwear Components

Indias export of leather footwear components have been decreasing at a rate of

2.27% during 1995-96 to 2007-08. (Table 4.8) Italy, Germany and France are the major

importers of Indian Leather Footwear components. Despite this decline Indias exports

of leather footwear has increased to most of the countries except U.K. and Austria inboth absolute as well as relative terms. Though shares of Spain, Portugal and Slovakia

has declined in recent years but their shares have increased drastically from 1991-92 to

2007-08.

Table 4.7: Indias Exports of Leather Footwear Components: Destination Wise (US $Million)


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Country 1995-96 1998-99 2000-01 2003-04 2005-06 2006-07 2007-08

Italy 54.11 58.06 61.04 41.44 34.84 44 56.24

Share % 22.23 24.08 25.59 25.67 19.09 20.7 33.39

Germany 55.71 53.05 48.7 27.66 24.11 34.17 40.56

Share % 22.89 22 20.42 17.13 13.21 16.08 24.08

UK 47.31 57.94 50.18 17.2 21.71 12.5 18.07

Share % 19.44 24.03 21.04 10.65 11.89 5.88 10.72

Spain 1.6 4.05 7.01 15.65 18.88 14.91 17.29

Share % 0.65 1.68 2.93 9.69 10.34 7.02 10.26

Portugal 7.42 11.39 17.88 12.9 16.35 15.07 --

Share % 3.04 4.72 7.49 7.99 8.96 7.09 --

France 4.38 9.93 8.44 10.96 14.58 21.17 26.53

Share % 1.8 4.11 3.53 6.79 7.98 9.96 15.75

Switzerland 3.88 6.67 4.95 4.42 7.33 7.99 8.2

Share % 1.59 2.76 2.07 2.73 4.01 3.76 4.86

Slovakia 0.05 0.17 3.89 3.83 7.13 14.93 --

Share % 0.02 0.07 1.63 2.37 3.91 7.03 --

Austria 5.2 2.09 2.86 5 5.28 3.13 1.52

Share % 2.13 0.86 1.99 3.09 2.89 1.14 0.90

Hungary -- -- 0.05 1.82 4.57 5.09 --

Share % -- -- 0.02 1.12 2.5 2.4 --


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Other

countries63.67 37.71 33.48 20.5 -- -- --

Share % 26.16 15.64 14.03 12.7 -- -- --

World Total 243.33 241.06 238.48 161.38 182.55 212.51 168.41


4.7 Export of Saddlery and Harness

Indias export of saddlery and harnesses has been increasing at a rate of 8.96% in the

period of 1995-96 to 2007-08.Table 4.8 provides the direction of trade with respect to

saddlery and harness from India. Indias volume of exports of saddlery and harness to all

the ten major importing nations has been increasing in the period 1995-96 to 2007-08

but the shares of USA, Netherlands and Australia have been declining in Indiassaddlery and harness exports. Despite this, there is a phenomenal increase in the

growth rate of Indias exports of saddlery and harness indicates that India is capable of

diversifying and exporting to more and more countries.

Table 4.8: Indias Exports of Saddlery and Harness: Destination Wise (US$ Million)

Country 1995-96 1998-99 2000-01 2003-04 2005-06 2006-07 2007-08

UK 1.68 2.73 8.4 5.93 14.91 12.49 16.24

Share % 7.85 8.23 19.65 11.24 24.24 19.04 19.26

USA 5.42 6.33 8.92 8.92 13.91 14.82 13.36

Share % 25.35 19.09 20.87 16.9 22.61 22.59 15.84

Germany 3.95 8.42 7.64 10.88 10.94 13.09 19.75

Share % 18.47 25.39 17.87 20.62 17.79 19.95 23.42

France 2.27 2.42 3.17 4.74 6.80 7.14 9.21

Share % 10.61 7.3 7.41 8.99 11.06 10.88 10.92

Sweden 0.83 1.76 1.63 2.27 3.74 4.70 6.37

Share % 3.88 5.3 3.81 4.3 6.08 7.16 7.55


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Netherlands 1.71 2.76 1.9 2.91 3.68 3.38 5.59

Share % 7.99 8.32 4.44 5.51 5.98 5.15 6.63

Italy 0.54 0.78 1.32 1.73 2.80 2.83 4.92

Share % 2.52 2.35 3.08 3.27 4.55 4.31 5.83

Spain 0.51 0.65 1.18 1.91 2.53 3.00 3.54

Share % 2.38 1.96 2.76 3.62 4.11 4.57 4.20

Australia 1.1 1.47 2 1.97 2.20 4.16 5.35

Share % 5.14 4.43 4.68 3.73 3.58 6.34 6.34

Other

countries

3.37 5.81 6.56 11.48-- -- 16.24

Share % 15.76 17.52 15.35 21.76 -- -- 19.26

World Total 21.38 33.15 42.73 52.75 61.51 65.61 84.33


4.8 Major Leather Products Exporting Countries in the World

Table 4.9 gives the major leather and leather products exporting countries and their share

in world trade. China corners the largest share among all the nations in the export of

leather and leather product. Its share has been rising steadily from 17.77% in 2000 to

32.11% in 2006. Though Italys share has been steadily declining it still remains a major

exporter of leather and leather products next only to China. Brazils exports have beendeclining steeply from 2000 to 2006. Shares of countries like Korea Republic, Indonesia

and Taiwan have been steadily declining.

Table 4.9: Export Share of Major Leather Producing Countries in the World


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Country Exp o rt Sha re

As a p erc enta g e (%) of World Exp ort

2000 2004 2006

China 17.77 21.99 32.11

Italy 15.89 15.81 10.74

Brazil 3.14 3.39 0.34

India 2.54 2.44 3.14

Romania1.09

1.71 0.47

Korea Republic 3.19 1.63 0.29

Indonesia 2.49 1.53 0.41

Taiwan 1.97 1.26 0.32

Rest of the world 51.92 50.24 52.13

Wo rld To ta l100.00 100.00

100.00

Total Volume (US$ Million)77331.26 97606.18 --

Source: World Statistics, ITC, Geneva, Indias exports, DGCI & S

4.9 World Leather Exports Growth

The volume of world trade in leather and leather products has been steadily increasing.

The growth rate during the 2004-06 was 55.48% compared to 5.99% growth in the pre

2000-04 time period (Table 4.10). This shows that there was impressive growth in worldtrade of leather and leather manufactures in the post 2000 period.

Indian exports growth rate has shown a marginal increase in the post 2004period and its growth rate lags behind that of China, which registers animpressive growth rate of 11.79% in the pre 2004 period and 28.02% in the post


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2004 period. Romania is another country, which registers an impressive growthrate of 18.78% and 21.63% during the time period 2000-04 and 2004-06respectively. Italy is another nation which has shown an impressive growth rateof 16.80% during 2004-06 as compared to 5.86% during 2000-04. But India isbetter off than some nations like Brazil and Taiwan, which have been sufferingfrom negative growth rates for both the post 2004 period.

Table 4.10: Growth in World Trade of Leather and Leather Products

CAGR= Cumulative Average Growth Rates

Source: World Statistics, ITC, Geneva, Indias exports, DGCI & S

US $ Million CAGR %

Countries2000 2004 2006 2000-04 2004-06

India 1963.55 2379.44 2621.00 4.91 4.97

China 13741.54 21464.30 35182.24 11.79 28.02

Italy 12286.64 15432.76 21056.75 5.86 16.80

Brazil 2427.39 3307.49 2382.79 8.04 -15.12

Romania 839.64 1671.43 2473.06 18.78 21.63

Korea Republic 2465.80 1587.48 2040.80 -10.42 13.38

Indonesia 1923.01 1490.06 1876.37 -6.17 12.21

Taiwan 1526.23 1227.81 1210.46 -5.29 -0.70

World trade 77331.26 97606.18 235956.92 5.99 55.48


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CHAPTER V

GLOBALIZATION AND PROSPECTS FOR LEATHER INDUSTRY

5.1 Introduction

The post liberalization era has opened up a plethora of opportunities for the Indian leatherindustry. Along with China and Vietnam, India stands to gain a bigger share of global market.Since global players are looking at new sourcing options for their trade in leather products.Leading brands from the US and Europe, are planning to source leather and leather productsfrom India The Hindu Business Line, February 04, 2005). Global players who participated at theIndia International Leather Fair, 2005, emphasized on India as sourcing destination for theirtrade in leather products.

The domestic producers have also realized the opportunities ahead. In fact, almost every playerin the organized sector is on an expansion spree, and many are doubling capacities.

Currently India has a share of nearly 2.3 per cent i.e. 2 billion in the global trade of leather andleather products of nearly US $ 88 billion. Moreover, India has significant cost advantages interms of labour and raw materials in comparison to the other developed countries which areevident from the interest shown by the global players as mentioned above. Taking the current

meager share in global trade and the cost advantages into account it may be said that Indianleather industry has a significant potential for higher share in global trade.

In addition to the global market, Indian leather industry is yet to capture the existing untappedpotential in the domestic market. India has a large and growing consumer class (annual income >US$ 449), estimated to constitute nearly 90 million households by 2006 - 07, having aCompound Annual Growth Rate (CAGR) around 12%. Global players in the leather business,big or small are today focusing increasingly on India's domestic market which is already,witnessing numerous developments. Not only quantity-wise but also quality wise there has beensignificant development in the Indian leather sector: The number of people within the countrywho are today ready to buy high priced shoes, in the range of US $ 30 to US $ 45 a pair, has

gone up significantly. Besides, the retail revolution is also boosting availability of goods, and themarket for branded footwear (www.tdctrade.com (2006) International Market News, May).

Hence, looking at the global trade scenario and domestic demand it may be said that the Indianleather industry has the potential to grow leaps and bounds in the future years to come. Andhence it has an enormous potential for offering huge employment opportunity particularly inrural and semi-urban areas. It is estimated that the potential for employment across all skills to be


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in the tune of semi-skilled and unskilled labourers - 92%; technical supervisory, shop floor - 7%;entrepreneurs, senior managers and technologists - 1% (CII-2006).

However, the extent to which the growth potentials of Indian leather industry can be realizeddepends its competitive strength vis-a vis its competitors. Otherwise, the absence of requiredcompetitive strength in the era of globalization will turn a producing economy into a consuming

one only.

5.2 Competitive Strengths of Indian Leather Industry

The perception about growth potential of Indian leather industry draws its inspiration fromvarious sources constituting the strength of the industry. Some of the important ones could be thefollowings.

(a) Raw Material Source: Fortunately, the industry has access to one of the cheapest

and abundant source of raw material. The livestock is the raw material for theleather industries. Cattle, buffaloes, goat and sheep are the four live stock specieswhich provide the basic s

export and import of leather goods

Documents