India sets itself ambitious targets6 August 2007
This year the fair was bigger and busier than ever before. BASF, who showed for the first time, were so overwhelmed by the mass of visitors that they had to send back to their Indian headquarters for reinforcements. And, despite the expansion of the exhibition complex itself, there was still a sizeable portion of the show under canvas.
In 2006 there were 325 exhibitors rising to 390 in 2007, including 135 from overseas. This year's fair was spread over 7,300 sq m which compares with 1,800 sq m at the outset, in 1986 when it was held in Valluvar Kottam in Chennai. The leather industry in India employs 2.5 million people but this is not enough for the government who not only want the leather industry to double their production but to create another half million jobs as well. Currently the industry ranks eighth in terms of foreign exchange earnings. By pushing for added value, finished goods now account for 80% of total exports by the industry. This was a mere 7% in 1956-57. India accounted for 2.56% of the global leather trade in 2004 and, with the exclusion of non-leather footwear, this rose slightly to 3.22%. Although leather footwear, leathergoods and saddlery and harness have grown at rates of 19.61%, 10.83% and 23.81% respectively, because of the declining trend in other product categories such as finished leather, leather garments, footwear components and non-leather footwear, the Council for Leather Exports has set a target of US$2,943 million at a targeted growth rate of 9.24%. However, India is second, behind China, when it comes to footwear, producing 2.06 billion pairs/year. In leather terms they produce two billion sq ft which is 10% of the world's requirement. They also possess 21% of the world's large animals and 11% of the small, making them the largest livestock holding country in the world. With this year's total leather industry exports projected at US$3 billion, this is quite modest when you realise that they hope to achieve $7 billion in the next few years. They are also projecting 300 million pairs of shoes in the same period but acknowledge that decision making in China is quicker which is one of the reasons why growth is slower than might have been expected. Despite this they are still the preferred sourcing choice for some pretty well known international brands: Pierre Cardin, Versace, Next, Hugo Boss, Tommy Hilfiger, Florsheim, Clarks, K Shoes, DKNY, Liz Claiborne etc. In the league table of major importing countries of Indian leather and leather products, in 2005-06, the biggest customer was Germany with US$358 million followed by the UK with $341 million. Next in line was the US with $315 million with Italy close behind with $309 million. The next highest contender was Hong Kong with $238.67 million, then Spain with $195.66 million and France with $142.66 million. Vision document to 2010 The Council for Leather Exports has drawn up a road map of the Indian leather industry: A Vision Document for 2010-11 which they presented to Shri Jairam Ramesh, the Minister of State for Commerce, Government of India, in June 2006. The document envisages an increase in exports to the tune of US$7 billion by 2010-11. This is an extremely ambitious target which would require a sustained export growth rate of 20% annually. Finished leather exports alone are expected to grow from US$623 million in 2006-07 to $915.63 million in 2101-11. According to Dr K Elangovan, executive director of the CLI, this will require immediate investment in capacity augmentation and training of manpower. Also marketing efforts need to be switched to large markets such as the USA and new markets in the Far East and Scandinavia. He concludes: 'The investment climate needs a re-look from the point of FDI and the impediments in the logistic channel need to be removed with urgency.' Issues of size India is a huge country and while the state government may be keen to support leather as a thrust sector there are not only various obstacles planted in the way by the state government but also a number of different state governments with control over day to day aspects of leather business. One example is that of the plea by the Tamil Nadu tanning industry to raw materials suppliers elsewhere in the country to open a branch office in their state, thereby relieving tanners from a 4% central sales tax. As it stands, from January 1, the new value-added tax regime will only allow an input tax credit on raw materials procured within the state. Since the Tamil Nadu industry sources 90% of its raw materials from other states this puts it in a very difficult situation. Only 7% of raw materials are available within Tamil Nadu. And the footwear industry in West Bengal complains that it is becoming uncompetitive due to large tax exemptions in states such as Delhi and Madhya Pradesh. They want a full vat exemption on low priced footwear and a reduction from 12.5% to 4.5% on footwear between Rs300 and Rs750. High taxes are driving manufacturers to relocate to Delhi and Agra which is good for them but bad for Bengal. Another tax loophole is through the setting up of Special Economic Zones which got the green light in 2005. This is regarded by many as the way forward to make India more attractive to outside foreign direct investment since overseas companies involved in developing business in the SEZ are exempt from local taxes and levies. In February 2006, the foundation stone was laid for a new footwear manufacturing plant for Apache Investment Holdings, a supplier to Adidas, at Mambattu village in the Nellore district of Andhra Pradesh. At the time the development was heralded as paving the way for the creation of a sector-specific SEZ for the footwear industry. Great employment opportunities are expected, particularly as Adidas have been chosen as official suppliers of footwear for the Beijing Olympics. Not everyone welcomes the advent of SEZs, however. There is a left-wing view that the policy is anti-people. With permission already granted for 432 SEZs throughout the country, the fear is that they would mostly be established on agricultural land but that the farmers would not be adequately compensated. Five special economic zone footwear parks are being developed in different parts of the country under the CLE's vision map for 2010-2011. The Tamil Nadu government is promoting one at Sriperumbudur near Chennai with a saleable area of 105 acres and a capacity for twenty units. Others are coming up near Kanpur, Hyderabad, Agra and Kolkata. The CLE are also proposing the setting up of 15 integrated leather parks under the Eleventh Five Year Plan. The government would share 40% of the costs of each park. Two tanning clusters are to be set up to increase capacity and the first of these is near Nellore. Chemicals suppliers A reliable barometer of the health of a nation's leather industry is the chemical industry because without chemicals production cannot take place. It is a measure of the success of India's leather industry that most of the important chemicals suppliers have set up production sites, applications laboratories and regional offices in India. Stahl were one of the earliest to set up shop but look around and you will find BASF, ATC France, Clariant, TFL Quinn and many more. It would be easier to list the companies that are absent so far. The chemicals companies know their customers; they know the ones who are innovative, efficient, productive and, most importantly, those who pay their bills. Outsiders going to India on the quest of a joint venture tend to stick to the old routes when they should be researching the marketplace. India has now reached the point where they need to establish their own brands and their own qualities and who better to advise than their chemicals suppliers. They can continue to produce as cheaply as possible, opt for non-leather footwear, or they can lift their sights and produce added value leathers which offer something special. It is now possible to make leathers with incredible properties and amazing textures. If Indian tanners can only produce to a price they are missing out on great opportunities. If they can offer leather which is coveted by the consumer they are assured of success. A must have item should be every tanner's dream.