AMITY UNIVERSITY KOLKATA

TOPIC- Impact of GST, Leather

Industry in India
Impact of GST, Leather Industry in India

Over the years the Indian Leather Industry has undergone drastic
change from being a mere exporter of raw materials in the early 60’s
and 70’s to an exporter of finished, value- added leather products.
The main reason behind this good transformation is the several
policy initiatives taken by the Government of India. Indian leather
industry currently is one among the top 8 industries for export
revenue generation in India, holding 10% of the global raw material,
and 2% of the global trade. India has become biggest livestock
producer in the world with the capacity of 1.8 billion sq. Feet of
leather production annually. Global footwear of 13% production
comprising of 16 billion pairs are made in India. India today produces
2065 million pairs of various categories of footwear. It exports 115
million pairs, thus having 95% of its production to meet its own
domestic demand.

Market Capitalization- 

Among all the industries the footwear industry in particular holds

greater potential for investments in India. Today India produces
approx. 700 million pairs of leather footwear every year and
accounts for an 18% share of the total Indian leather Export.

Size of the Industry- 

Indian leather Industry today has capacity to produce 1776 million

pairs; 112 million pairs of Shoe Uppers. Though India is the second
largest producer of footwear and leather garments in the world,
India accounts for a share of close to 3% in the global leather import
trade of US$ 137 billion.

The introduction of GST would thus be environment friendly- 

Based on various computations, the revenue neutral GST rate across
goods and services is expected to be positioned somewhere in the
range of 6.2 per cent and 9.4 per cent, depending on various
scenarios of sectoral exemptions. In sum, implementation of a
comprehensive GST in India is expected to lead to efficient allocation
of factors of production thus leading to gains in GDP and exports.
This would translate into enhanced economic welfare and returns to
the factors of production, viz. land, labour and capital.

Structure of the Industry 

The leather industry is spread in different segments, namely, tanning

& finishing, footwear & footwear components, leather garments,
leather goods including saddler & harness, etc.

With tanning and finishing capacity for processing 1192 million

pieces of hides and skins per annum spread over different parts of
the country, most of which is organised along modern lives, the
capability of India to sustain a much larger industry with its raw
material resource is evident. In order to augment the domestic raw
material availability, the Government of India has allowed duty free
import of hides and skins from anywhere in the world. It is an
attraction for any foreign manufacturer who intends to shift his
production base from a high-cost location to low-cost base.

India is one of the largest producers of saddlery and harness goods in

the world. The saddlery industry was established in the 19th century
primarily to cater to the needs of military and police. From then on
initiatives were taken to develop, the industry and today there are
over 150 units in the organised sector, out of which approximately
105 are 100% export-oriented units. The export of saddlery and
harn’ess items have showed an annual growth rate of about 40%
reaching DM 64 million during 1998-99. The major importers of
Indian saddlery are Germany, USA, UK, France, Scandinavia,
Netherlands, Japan, Australia and New Zealand.
The Leather Garment Industry occupies a place of prominence in the
Indian leather sector.  The product classification of leather garments
comprises of jackets, long coats, waist coats, shirts, pant/short,
children’s garments, motorbike jackets, aprons and industrial leather
garments. Indian leather garments, which entered the world market
only in the mid-eighties with exports of Rs. 15 crores in 1997-98,
account for about Rs. 1530 crore in 1997-98.  The major export
destination of leather garments from India is Germany.  In 1997,
German imports of leather garments aggregated DM 1786 million of
which DM 304 million worth of imports went from India.  India, China
and Turkey were the major suppliers of leather garments for the
German market, as they accounted for about 78% of the market
share. Among the three major exporting nations of leather garments,
India maintains a similar level of market share of about 20%, in both
German and EU markets. Other markets for India include Italy, U.K.,
U.S.A. France, Spain and Netherlands.  Recently, successful attempt
had been made for exports to Denmark, Switzerland and Canada.

Global Scenario:  

The global trade in leather and leather products has been increasing
over the years from mere US$ 4 billion in 1972 to US$ 70 billion in
1997. Although the exports of Indian leather and leather products
have grown manifold during the past decades, our country’s share in
global trade is around 3% among world imports of leather products.
Whereas India’s share in world imports of leather footwear is 1%.

 Expected Impact Of GST-  

Introduction of GST is expected to improve the prospects of

engineering, capital goods and power equipment (ECPE) sector by
simplifying the tax structure. The complexity in this sector is that
companies are involved simultaneously in manufacturing of goods
and rendering of services However, in general, a comprehensive tax
like GST which would combine the state and central taxes in a single
structure and where tax credit would be available at each stage of
production and final sale so that double taxation could be avoided.
This would bring in more cost competitiveness to the domestic
players. In this sector indirect tax range is much wider as compared
to the other sectors where the product range is limited. Hence,
depending upon the products manufactured by the company and
services rendered, basket of goods provided in the EPC contract, it
goes upto around 30% and any GST below this could improve the
cost competitiveness of players in this sector.  The Budget proposal
to reduce the excise duty on footwear with leather uppers and
having retail price of over Rs 1,000 has been welcomed by the
industry, saying the move will help increase competitiveness. “The
footwear industry is particularly bullish as for shoes having MRP of
above Rs 1,000 per pair will now attract half the excise duty by
halving the duty from 12 to 6 per cent,” Liberty Footwear Chief
Executive Adesh Gupta had said.

The move will provide boost to the domestic leather footwear

industry and help it compete globally, he said adding, “It would also
help provide a level-playing field for the organised sector and would
result in integration of unorganised sector into organised sector.
“Reacting to the announcement, Woodland, Managing Director,
Harkirat Singh had said: “We were expecting total removal of excise
duty the budget has only halved it but will be beneficial to leather
manufacturers and many other brands in the footwear industry.
“Echoing similar sentiments, EY, Tax Partner, Bipin Sapra said, “The
decrease in price of footwear is a welcome move amidst the increase
in cost of living of a middle-class household on account of increase in
service tax and excise rates.”

The Finance Minister has also announced implementation of GST

from April 2016. Welcoming this move, Singh had said, “The
announcement by the FM to introduce GST from April 2016 will
definitely rejuvenate the retail industry. This initiative would play an
important role by increasing buoyancy and reducing the cascading
effect of tax. GST would play a transformative role and bring about
revolution in the economy. 
Cost/ pricing economics for the finished goods: The GST regime
would also make the industry rework the entire cost economics, as
regards – (i) the taxation/ duty structure for procurement of raw
materials; (ii) stage-wise levy of excise duty on production; (iii)
service charge on job work; (iv) sales tax on interstate movement; (v)
value added tax in the selling state; and (vi) input credit ailment
mechanism for excise duty/ VAT/ service tax etc. which would all
stand abolished to give birth to a single-structured, self-adjusting
GST, attracted on the eventuality of sale of finished goods.

This cost/ pricing economics would further stand corrected due to

the taxation methods of stock transfer vs sale, reduced need for
multiple compliance authorities/ formalities, need to refit a modified
version of ERP tools, and adjustments in manpower/ supply chain
management cost.

Location of each segment of business enterprise is one priority, in my

view, that merits the attention of all unit owners, especially those
having pan-India presence. They would have to rewrite their
business location economics: (a) as to the location of their
procurement and manufacturing centres, keeping in mind the GST
environment, as against the historical rationale of the source of raw-
material/ skilled manpower/ demand zone etc.; (b) the location of
the mother depots for raw materials/ finished goods/ billing and so
on, given the fact that stock transfers would also attract GST with
related implications on working capital management; (c) and the
location of selling units would be determined based on the incentives
offered by the States, considering that the GST benefits would flow
more into the kitty of consuming states.
Here’s how GST will impact leather industry, white goods
Your leather shoes are set to cost a little more than usual. Under
the Goods and Service Tax (GST), leather products will be taxed at
28%, Members of the leather business are now worried about the
new tax structure and its implementation.
Your leather shoes are set to cost a little more than usual. Under
the Goods and Service Tax (GST), leather products will be taxed at
28%, Members of the leather business are now worried about the
new tax structure and its implementation.
With the run up to the new tax regime, several industry bodies have
apprehensions about the rollout and the implementation.
MIRROR NOW travelled to Dharavi in Mumbai and found out that the
leather industry was extremely unhappy with the 28% tax bracket
and seek in the reduction of the same considering it will be passed
on to the end-consumers.
In addition, workers alleged that there is lack of awareness about the
impact and implementation of the GST.
However, before the GST rollout, various malls are offering lucrative
offers and discounts to attract buyers and the party has already
begun for shoppers.
Consumers are flocking into malls and retail outlets are now offering
discounts to the tune of 40-50%. Diwali has indeed come early for
buyers as white goods and apparel have now begun offering massive
discounts to sell unsold stock ahead of the rollout.
At Big Bazaar, massive discounts have been offered to the tune of
50% on apparels and white goods such as TV, refrigerators etc.
The move taken by the retailers to sold off unsold inventories. The
older the stock, the bigger is the discount of the consumers.
Commenting on the same, Abhishek Rastogi, Tax Expert said, “Under
the GST regime, even if the rate goes to the higher 28% bracket,
there are lot of input tax that will come in the chain, and henceforth,
most of the products would be reduced from the existing tax
structure.”