Thursday, June 28, 2012

Impact Of Global Slowdown On Leather Exports And Remedies

Problem behind leather export industries :

Indian Leather industry is moving towards an unprecedented crisis with the slowdown of global economy. With the economies of US, Europe and Japan plummeting together, India has also witnessed fall in GDP growth from around 9% last financial year to 7% in the current financial year. It is projected to dip even further to around 5.5 % - 6% for Year 2009 10.

The leather exports sector which witnessed a growth 20% in the first half of 2009 got dented by the global slowdown in the subsequent months. The main reason is attributed to the decline in orders from Western markets, especially the US and UK. The European Union and the US are the two biggest markets for Indian leather export firms which stand at 65% and 25% respectively in terms of India's export share of Leather products.

Secondly Chinese Govt. is generously helping Chinese exporters to follow an aggressive exports policy which help them to bag the orders in the competition.

It is a matter of big concern for our Leather Industry which is mainly dependent upon its exports rather than domestic sales. Indian exports of leather is estimated at 3.5 billion INR and its domestic market is hovering around 2.5 billion INR. The main reason behind this could be that our leather industry cannot rely on its domestic market as the retail sector is still immature to sell the export products.
Leather exporters are being inextricably caught in a situation where buyers are delaying fresh orders besides delaying their payments on existing orders and on top of that they are also asking for huge discounts. It seems that if the problem is not addressed on time, it would adversely affect the small scale and tiny industries and also have an impact on big businesses, leading to job-loss and closure of units over the next few months.

It is estimated that around 2-3 lakh workers can lose their jobs in leather industry which has employed around 25 lakh total workers.

Remedies to boost leather export industries:
Need of the hour is to take proactive and logical steps to tackle the situation effectively which can only happen with the matched efforts on the part of both Government and Industry.

Mr. Habib Hussain (Chairman of leather exports council) while addressing the issue has suggested a three-pronged approach to tackle the situation.

He emphasized on creating the required infrastructure and have long-term plans,
Providing subsidized term loans to exporters who have suffered losses due to slow down
Treating US and Europe in focus markets scheme.
Innovative product designs at competitive rates.
In addition to the above, some immediate measures are needed to alleviate the plight of the leather exporters. Govt. should increase the drawback rates, reduce delays in export incentive reimbursement, Increase duty free import limit for manufacturing exporter on the % of export value, and increase weight age of leather goods under focus product scheme.

All these steps are necessary to retain the big global brands which source from India which can otherwise go to China who has cost advantage to play with.

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