ASTUDY

ONLEATHER INDUSTRY

AND THE EXPORT MARKET

OF INDIA

Presented bySanjay 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.

CONTD..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.

CONTD..• 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.

FUTURE OUTLOOOK

•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.

CONTD..

• The import duties on capital goods have been

reduced.

• No FDI till 2002 because of reservations in the

industry.

• 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%

OTHERS12%

CONTD..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

CONTD..•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:

CATEGORY Large units

MediumUnits

SmallUnits

MicroUnits

MerchantUnits

Total

Finished leather

30 49 309 68 151 607

Leather Footwear

38 46 228 49 81 442

Non leather footwear

4 2 34 13 17 70

Footwear components

29 32 182 28 22 293

Leather goods

14 13 242 259 210 738

Leather garments

8 8 132 45 72 265

Leather gloves

4 3 38 36 24 105

Harness and Saddlery

3 9 74 69 28 181

Total 130 162 1239 571 603 2705

SPECIAL REFERENCE TOINDIAN 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.

CONTD..

• *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 Indian 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

• 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

CONTD..

•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

PRODUCT PORTFOLIO OF LEATHER FOOTWEAR PRODUCTS

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.

CONTD..

• 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

TABLE:2 Production and Export of Leather and Leather Products (in crores)

YEAR AND DETAILS

ORGANIZED

UNORGANIZED

TOTAL SHARE OF THE ORGANIZED SECTOR=ORGANIZED/TOTAL*100

EXPORTS

EXPORT AS % TO PRODUCTION=EXPOR/TOTAL*100

2004-05 12401 14927 23373 45.3% 10881 39.7%

2005-06 15406 15530 30936 49.8% 11943 38.6%

2006-07 17482 17263 34745 50.3% 13650 39.3%

2007-08 24392 19861 44253 55.1% 14101 31.9%

2008-09 24828 19228 44056 56.4% 16355 37.1%

2009-10 27017 20923 47940 56.4% 15946 33.3%

TABLE:3 Commodity composition of exports (US $ Million)PRODUCT

2005-06

2006-07

2007-08

2008-09

2009-10

%SHARE

APR-JAN

09-10

APR-JAN10-11

FINISHED LEATHER

636.3

724 807.2 673.4 625.5 18.4 506.5 669.5

FOOTWEAR

1045.2

1236.9

1489.4 1534.3 1507.5 44.3 1018.5 1159.1

LEATHERGARMENTS

333.3

309.9 345.3 426.2 428.5 12.6 372.2 330.5

LEATHERGOODS

660.2

706.3 800.5 873.4 756 22.2 616.7 657

SADDLERY & HARNESS

77.5 82.3 106.2 92.2 83.4 2.5 67.5 69.1

TOTAL 2752.5

3059.4

3548.5

3599.5 3401 100 2581.3

2889.2

% GROWTH

10.30

11.15 15.99 1.44 -5.51 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

• 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

PRINCIPAL 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

AUXILIARY DOCUMENTS

• 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. Gate pass-I/Gate pass-II (prescribed by central excise authorities)

2. AR4/AR4A form (prescribed by central excise authorities )3. 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

4. Export application (prescribed by port trust)5. Receipt for payment of port charges6. Vehicle ticket7. Exchange control declaration prescribed by RBI GR/PP forms8. Freight payment certificate9. 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 foreign exchange

regulations.

DOCUMENTS RELATED TO GOODS

(I) INVOICE

▫ 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.

CONSULAR INVOICE

• 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 2022INCREMENT

FLAYING AND CURING

1000 1302 2122 2856 1856

TANNING AND FURNISHING

100 142 212 286 186

FOOTWEAR AND FOOTWEAR COMPONENTS

1100 1698 2334 3141 2041

LEATHER GARMENTS AND GOODS

TOTAL

300

2500

503

3645

637

5305

857

7139

557

4639

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 Sector.

CONTD..

• 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.

SWOT AnalysisStrengths•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.

WEAKNESSESS

•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.

OPPORTUNITIES

•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.

THREATS

• 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 SUPERHOUSE

SARUPTANNERIES

NET SALES 297.24 686.01 472.85 358.41 36.14

EBIDTA 24.80 72.08 84.60 35.36 30.4

EBIDTA AS % OF NET SALES

8.34% 10.51% 17.89% 9.87% 8.4%

PAT 10.64 26.71 39.18 13.65 0.85

PAT AS % OF NET SALES

3.58% 3.89% 8.29% 3.81% 2.36%

MARKET CAP 154.81 294.09 199.78 55.27 11.95

INFORMATION

•All the data has been extracted from NSE

site and the updated results.

•All data projected is either for year

ending 2010 or 2011.

•All figures are in INR Crores.

SOURCEWebsites

• http://planningcommission.nic.in/aboutus/committee/wrkgrp12/

wg_leath0203.pdf

• 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/

TransformingArtisansintoEntrepreneurs.pdf

• http://www.clri.nic.in/

• http://www.leatherindia.org/products/footwear.asp

MAIN SOURCES

Report of:• Report of working of 12th 5 year plan (2012-

17)leather and leather productsSubmitted by:Department of industrial policy and promotionGovernment of IndiaMinistry of Commerce & Industry• The Indo-Italian Chamber of commerce and

industry (IICCI):The Short Market Overviews-The Indian Leather Industry

• LEATHER RESEARCH INDUSTRY GET-TOGETHER (LERIG) 2012.

THANK YOU..