A STUDY ON LEATHER INDUSTRY AND THE EXPORT MARKET OF INDIA
Presented by Sanjay Yadav
LEATHER INDUSTRY IN INDIA
THE CURRENT STATUS AND FUTURE OUTLOOK OF THE LEATHER INDUSTRY • Leather Industry occupies a place of prominence in the Indian economy in view of its massive potential for employment, growth and exports. • There has been increasing emphasis on its planned development, aimed at optimum utilization of available raw materials for maximizing the returns, particularly from exports.
The leather industrial sector comprises of: • Tanneries (where raw hides and skins are converted into leather) • *Factories transforming leather into a variety of consumer products. • Apart from the quality of raw material, the process of its conversion into leather and, later, of the design, product development and process of manufacture, of products play a key role in adding value to it.
• The post liberalization era has generated significant opportunities for the Indian leather industry. With global players looking for new sourcing options, India stands to gain a bigger share of the global market. • *The industry has undergone a dramatic transformation post liberalization. • Policy initiatives taken by the Government since 1973 have been, to a large extent, instrumental for such a transformation.
• *India has a 2.6 per cent share in the global leather trade and is ranked
eighth. • The composition of exports has also been changing, with more and
more value added products being exported.
• India’s share in global value added from this sector was 2.1 per cent in 2000 and declined to 1.8 per cent in 2009. • India has distinct advantages in the leather industry. • Still tapped potential in the leather sector, particularly in the high end value chain is still limited. • This untapped potential provides the sector significant opportunities for expansion and diversification.
FEATURES OF INDIAN LEATHER INDUSTRY
• The Government policies on leather and leather product export started changing from 1974. Priorities were given for export of value added goods. • *From the year 1991 onwards export of semi finished leather was banned. • Many tanners started setting up factories for manufacturing leather products after 1991-92 like shoe uppers, shoes, garments and leather goods. • Manufacturers began to seek backward linkage, by taking on lease or setting up tanneries. • This was a unique development in India, a tanner becoming product maker and the product sector setting up tanneries or leasing out tanneries.
• The import duties on capital goods have been reduced. • No FDI till 2002 because of reservations in the
• Today the industry ranks 8th in the export trade. • India is largest livestock holding country. • The Indian leather sector meets 10% of global finished leather requirement.
The export destinations of Indian finished leather and leather products in 2010-11 are as follows:
EUROPEAN COUNTRIES 65%
NORTH AMERICA 12%
HONG KONG & CHINA 11%
The main production centre's for leather and leather products are the following: • TamilNadu–Chennai,Ambur,Ranipet, Vaniyambadi, Trichy, Dindigul and Puducherry • West Bengal –Kolkata • Uttar Pradesh –Kanpur, Unnao, Banthera, Agra and Noida • Punjab – Jallandhar • Tamil Nadu accounts for about 40% of India’s exports and has about 60% of tanning capacity. • The Indian leather industry employs about 2.5 million workforce and 30% of the workforce is women.
The industry has a very strong institutional set up. The following are the major institutions cater to the industry:
• CLE: Council for Leather Exports (Under Ministry of Industries and Commerce) • CLRI: Central Leather Research Institute (Under Department of Scientific and Industrial Research, Ministry of Science and Technology) • AISHTMA: All India Skin Hide Tanners Merchants Association • ISF: Indian Shoe Federation • IFLMEA: Indian Finished Leather Manufacturers and Exporters Association • CFTI: Central Footwear Training Institute • ILIFO: Indian Leather Industry Foundation
• IILP: Indian Institute of Leather Products • UPLIA: Uttar Pradesh Leather Industries Association • CLCTA: Kolkata Leather Complex Tanners Association • AFMEC: Agra Footwear Manufacturers and Exporters Association • Regional Tanners Associations • Common Effluent Treatment Plants • Special Purpose Vehicles promoted to implement certain infrastructure projects
STRUCTURE OF THE INDUSTRY
• The leather industry in India is geographically well diversified, though Tamil Nadu, Uttar Pradesh and West Bengal account for bulk of the output. • The major production centre's are at Tamil Nadu, West Bengal, Uttar Pradesh and Punjab. • The sector is dominated by micro and small units. • The distribution of the units in this sector in terms of the broad classification of MSME is al follows:
Finished leather Leather Footwear Non leather footwear Footwear components Leather goods Leather garments Leather gloves Harness and Saddlery
Large units 30 38 4
Medium Units 49 46 2
Small Units 309 228 34
Micro Units 68 49 13
Total 607 442 70
151 81 17
14 8 4 3
13 8 3 9
242 132 38 74
259 45 36 69
210 72 24 28
738 265 105 181
SPECIAL REFERENCE TO INDIAN FOOTWEAR INDUSTRY-A STATUS NOTE
• The footwear sector is a very significant segment of the leather industry in India; rather it is the engine of growth for the entire Indian leather industry. • India is the world's second largest producer of footwear after China accounting for 13% of global footwear production of 16 billion pairs. • Various types of shoes produced and exported from India include dress shoes, casuals, moccasins, sports shoes, sandals, ballerinas, and booties. • *Most of the modern footwear manufacturers in India are already supplying to well establish brands in Europe and USA.
• *The large domestic market and the opportunity to cater to world markets make India an attractive destination for technology and investments.
• *It is equally relevant for the footwear components
industry, at this juncture, it is posed for real growth and diversification. • US Retail giant Wal-Mart has also begun sourcing footwear from India since the last two years.
BRANDS SOURCED FROM INDIA
• • • • • • • • • • • • • • • • • • • Armani Diesel Lacoste Calvin Klein Hush Puppies Marks &Spencer Nike Pierre cardin Reebok Tommy Hilfiger Versace Acme Ann Taylor Bally Charter Club Clarks Coach Colehann Ecco
• • • • • • • • • • • • • • • • •
Hasley Cole Haan Rockport Salamander Johnston & Murphy Docksteps Timberland Elefanten Etienneaigner Florsheim Gabor Geoffrey Beene Guess Daniel Hector Deichmann DKNY DoubleH
MNC Brands Sold in India
• • • • • • • • • • • • • • • • • Reebok Hush Puppies Lee cooper Lloyd Marks & Spencer Nike Bata Aldo Bally Clarks Ecco Florshiem Ferragammo Nine West New Balance Rockport Stacy Adams • • • • • •
Indian Brands sold in India
Red Tape Liberty Khadims Lakhani Metro Action
Major Importing Countries
Major Exporting Countries
• • • • • • • • • • • •
USA Germany France UK Hong Kong Italy Japan Spain Belgium Russia Netherlands Canada
• • • • • • • • • • • • •
China Italy Honk Kong Vietnam Belgium Germany Spain Netherlands France Brazil Indonesia Portugal Romania
CHALLENGES IN LEATHER PRODUCT SECTOR, PARTICULARLY FOOTWEAR SECTOR
• Varying levels of technology in the factories depends on the size of the factories • Low quality of shoes – threat of shift in production to other areas or countries where wages levels are low if the quality is maintained at same level • Most companies work on subcontract basis – design, component selection and methods of production are given by the buyers and do not provide their own fashion collections, however companies are able to make prototypes based on ideas provided by the buyer. • Strong requirement to increase quality as well as quantity
• Availability of right raw material (finished leather) at right time. • Absence of own collections and poor development of footwear components, particularly for women’s footwear – Market size of women’s footwear in the world is 63% of total footwear market, but the share of women’s footwear exports out of India’s total footwear is only 34%. • Meeting manpower requirement under the state of affairs of rapid industrialization
GOVERNMENT POLICIES IN SUPPORT OF THE INDUSTRY
• The entire leather sector is now de-licensed and de-reserved. • 100% Foreign Direct Investment and Joint Ventures permitted through the automatic route. • 100% repatriation of profit and dividends, if investments made in convertible foreign currency. Only a declaration to this effect to the Reserve Bank is required. • Promotion of Industrial Parks (one leather park in A.P; one leather goods park in W.B; one footwear park in T.N.
• Duty free import of all types of raw materials . • Funding support for modernizing manufacturing facilities . • Funding support for establishing design studios. • Duty free import of raw materials.
• Concessional duty on import of specified
machinery for use in leather sector.
PRODUCTION AND EXPORT OF LEATHER AND LEATHER PRODUCTS
• Production data for leather sector, as for the other industries, are available in the National Accounts Statistics (NAS). • NAS provides data for both the “organized sector” (defined in terms of employment and covering all units employing 10 or more workers) and the “unorganized sector” (defined as units employing less than 10 workers). • As per the NAS, total output of the leather sector increased from Rs 27,233 crore in 2004‐05 to Rs 47,940 crore in2009‐10 at an average annual rate of 11.8 per cent. • The growth in the organized sector at 16.9 % was significantly higher than the unorganized sector, which recorded a growth of 6.9 % during this period. • The share of the organized sector, therefore, witnessed a sharp improvement. Exports had a slower growth compared to total output resulting in some moderation in the share of exports
Production and Export of Leather and Leather Products (in crores)
UNORG ANIZED TOTAL
SHARE OF THE ORGANIZED SECTOR=
EXPORT AS % TO PRODUCTION =EXPOR/TO
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
12401 15406 17482 24392 24828 27017
14927 15530 17263 19861 19228 20923
23373 30936 34745 44253 44056 47940
45.3% 49.8% 50.3% 55.1% 56.4% 56.4%
10881 11943 13650 14101 16355 15946
39.7% 38.6% 39.3% 31.9% 37.1% 33.3%
TABLE:3 Commodity composition of exports (US $ Million)
PRODUC T FINISHED LEATHER
FOOTWEAR LEATHER GARMENTS
2006 2007-07 08 724 1236. 9 807.2 1489.4 345.3 800.5 106.2
200809 673.4 1534.3 426.2 873.4 92.2
200910 625.5 1507.5 428.5 756 83.4 3401 -5.51
18.4 44.3 12.6 22.2 2.5 100
506.5 1018.5 372.2 616.7 67.5
669.5 1159.1 330.5 657 69.1
SADDLERY & HARNESS
706.3 82.3 3059 .4
TOTAL % GROWTH
3548.5 3599.5 15.99 1.44
2581.3 2889.2 11.77
EXPORT PROCEDURE AND DOCUMENTATION RELATING TO THE INDIAN LEATHER INDUSTRY
DOCUMENTATION AND PROCEDURAL REQUIREMENTS
• EXPORT DOCUMENTS:
▫ Commercial documents ▫ Regulatory Pre-shipment documents
• Commercial documents are those which, by customs of
trade, are required for affecting physical transfer of
goods and their title from the exporter to the importer and the realization of export sale proceeds. • The commercial documents may be classified into:
▫ Principal documents ▫ Auxiliary documents
• Commercial invoice
• Packing list • Bill of lading • Certificate of inspection/quality control • Insurance certificate/policy • Certificate of origin • Bills of exchange and shipment advice
• Proforma invoice • Intimation for inspection • Shipping instructions
• Insurance declaration
• Shipping order • Mate receipt • Letter to the bank for collection/negotiation of documents
REGULATORY PRE-SHIPMENT DOCUMENTS:
• Regulatory pre-shipment export documents are those which have been prescribed by different
government departments/bodies in compliance of
the requirements of various rules and regulations under relevant laws governing export trade such as export inspection, foreign exchange regulations, export trade control, customs etc.
There are 9 regulatory documents associated with the pre-shipment stage of an export transaction and are as follows:
1. 2. 3. ▫ ▫ ▫ ▫ 4. 5. 6. 7. 8. 9. Gate pass-I/Gate pass-II (prescribed by central excise authorities) AR4/AR4A form (prescribed by central excise authorities ) Shipping bill/bill of export (prescribed by central excise authorities ) For export of goods For export of duty free goods For export of dutiable goods For export of goods under claim for duty drawback Export application (prescribed by port trust) Receipt for payment of port charges Vehicle ticket Exchange control declaration prescribed by RBI GR/PP forms Freight payment certificate Insurance premium payment certificate
The different commercial regulatory documents may be classified into:
• Documents related to shipments, • Documents related to payment; • Documents related to inspection, • Documents related to excisable goods
DOCUMENTS RELATED TO GOODS
▫ CUSTOMS INVOICE
• The customs invoice is used in lieu of the commercial invoice in a few importing countries for customs purposes, but the importer
often needs a commercial invoice too.
• The customs invoice can be in a form called the certificate of value. • The invoice is self-certified by the exporter. Certain importing
countries may require their importers, not the exporters in the
exporting country, to provide the completed customs invoice for customs clearance.
• The consular invoice is a specific invoice issued by the Consul of the importing country. • Many importing countries, mainly less developed countries, have already phased out (withdraw) this invoice. • It is used for customs clearance and other purposes; as such any errors or omissions on the invoice may cause problems and fines at the customs in the importing country. • The consular invoice is a form of non-tariff barrier. • The exporter's declaration normally is included in a consular invoice.
(II) PACKING LIST:
• The packing list is the detailed list of contents of the shipment, including quantities, items, model numbers, dimensions and net and gross weights.
• A packing list should specify per carton or crate the
number and type of units of material inside. The shipper gets the packing list ready at the time the goods are being is prepared for shipping.
INFRASTRUCTURE DEVELOPMENT ACTIVITIES IMPLEMENTED DURING ELEVENTH PLAN PERIOD
• Scheme for ‘Development of Leather Parks’ • Industrial Infrastructure Up gradation Scheme (IIUS) • Integrated Development of Leather Sector (IDLS) Scheme
• Micro & Small Enterprises – Cluster
Development Programme (MSE‐CDP)
INTERVENTION MEASURES PROPOSED FOR THE 12th PLAN IN INFRASTRUCTURE DEVELOPMENT • Establishment of New Greenfield Clusters via Mega Leather Clusters Scheme • Establishment & Upgradation of Physical Testing Laboratory of CLRI, FDDI & others
▫ Central Leather Research Institute (CLRI) ▫ Footwear Design & Development Institute (FDDI)
• Modernization, technology up gradation and expansion of production capacities of the enterprises functioning in the leather sector.
HUMAN RESOURCE REQUIREMENT IN THE LEATHER INDUSTRY BETWEEN 2008 AND 2022(in ‘000s) SOURCE:IMaCS Analysis
ACTIVITIES 2008 2012 2018 2022 INCRE MENT
FLAYING AND CURING
TANNING AND FURNISHING FOOTWEAR AND FOOTWEAR COMPONENTS LEATHER GARMENTS AND GOODS TOTAL
CURRENT FDI REGULATIONS AND INDIA’S POSITIONING,
• The entire leather sector is de‐licensed paving the way for expansion of capacities on modern lines with state‐of‐the‐art machinery. • To further assist this process, the Government has permitted 100% Foreign Direct Investment
through the automatic route for the Leather
• Automatic route means that no prior permission is required either from the Government of India or from Reserve Bank of India for the investment.
• The investors are only required to notify the regional
office concerned of RBI within 30 days of receipt of inward remittances and file the required documents with that office within 30 days of issue of shares to foreign investors.
Strengths • High Growth • Ready availability of highly skilled and cheap manpower • Large raw material base • Policy initiatives taken by the Government • Capability to assimilate (take in) new technologies and handle large projects. • Continuous emphasis on product development and design up gradation.
• Lack of warehousing support from the government. • International price fluctuation. • Huge labour force resulting in high labour charges. • Lack of strong presence in the global fashion market. • Unawareness of international standards by many players.
• Rising potential in the domestic market. • Growing fashion consciousness globally. • Use of information technology and decision support software to help eliminate the length of the production cycle for different products.
• Use of e‐commerce in direct marketing.
• Major part of the industry is unorganized.
• Difficulty in obtaining bank loans resulting in high cost of private borrowing. • Strict international standards. • High competition from East European countries and other Asian countries • Lack of communication facilities and skills.
DESCRIPTION OF VARIOUS COMPANIES IN INDIA MANUFACTURING LEATHER PRODUCTS
DESCRIPTION LIBERTY RELAXO MIRZA SUPER HOUSE 358.41 35.36 9.87% SARUP TANNE RIES 36.14 30.4 8.4%
NET SALES EBIDTA EBIDTA AS % OF NET SALES
297.24 24.80 8.34%
686.01 72.08 10.51%
472.85 84.60 17.89%
PAT AS % OF NET SALES MARKET CAP
• All the data has been extracted from NSE site and the updated results.
• All data projected is either for year ending 2010
• All figures are in INR Crores.
• http://www.clri.org/LERIG2012/LERIG%202012_REPORT-3.pdf • http://dgciskol.gov.in/Dgcis.htm • www.ministyofcommerce.com • www.tradeportalofindia.com • www.indianleathercouncil.co • www.councilofleatherexport.com • www.eximbankindia.com • http://www.indiamart.com/leatherportal/ • http://msmestartupkit.com/sites/default/files/knowledge_base/Transformin gArtisansintoEntrepreneurs.pdf • http://www.clri.nic.in/ • http://www.leatherindia.org/products/footwear.asp
Report of: • Report of working of 12th 5 year plan (201217)leather and leather products Submitted by: Department of industrial policy and promotion Government of India Ministry of Commerce & Industry • The Indo-Italian Chamber of commerce and industry (IICCI):The Short Market Overviews-The Indian Leather Industry • LEATHER RESEARCH INDUSTRY GETTOGETHER (LERIG) 2012.