CONTENT · The leading importer of Indian leather footwear ... leather garments during 2007-08. The share of Belgium and Canada has increased over the years

I

CONTENT

Chapter Particulars Page No.

Executive Summary I - V

Chapter I Introduction 1

1.1. Background 1 1.2 Chapter Scheme 2

1.3 Limitations & Constraints 2

Chapter II Leather and Leather Products Sector - An Overview 3 2.1 Introduction 3

2.2 Structure of Leather Industry 3

2.2.1 The Product Segments 3-5

2.2.2 Production structure of Leather Industry 5-7

2.3 Wages Salaries in Leather Sector 7

2.4 Competitive Benchmarking 7-8

2.5 Measures for Anti Dumping by Companies in India

8-10

2.5.1 Chinese footwear remains controversial in EU 10-11

2.6 The Regulatory Regime 11

2.6.1 Competitiveness Enhancing Initiatives 11-12

2.6.2 Trade Facilitating Initiatives 12-14

II

Chapter III Productivity Of Leather & Leather Products Sector 15

3.1 Introduction 15

3.2 The Key Features of the Registered Factory Sector

15-16

3.3 Data and Variables 16

3.4 Growth Rate Analysis of Leather Industry 16-17

3.5 Labour Productivity Growth 17-18

3.6 Partial and Total Factor Productivity Analysis of Leather Industry

19-21

Chapter IV Export Trends In Leather And Leather Products 22

4.1. Introduction 22-24 4.2 Export of Finished Leather 24-25 4.3 Export of Leather Footwear 25-26

4.4 Export of Leather Goods 26-27 4.5 Export of Leather Garments 27-28

4.6 Export of Leather Footwear Components 28-29

4.7 Export of Saddlery and Harness 30

4.8 Major Leather Products Exporting Countries in the World

31

4.9 World Leather Exports Growth 31-32

Chapter V Globalization And Prospects For Leather Industry 33

5.1 Introduction 33

5.2 Competitive Strengths of Indian Leather Industry

34

5.3 Indian Leather Industry: Constraints 35-36

5.4 SWOT Analysis 37-38

III

Chapter VI Field Survey Findings 39

6.1 Profile of Leather Manufacturing Units 39-40

6.2 Turnover and profitability of the Units 40-41

6.3 Profitability of the Manufacturing Units 42-43

6.4 FDI and ICT Usage 44-45

6.5 Employment Profile 45-46

6.6 Trade Related Information 46-50

6.7 Cost Competitiveness 50-51

6.8 Price Factors 51-52

6.9 Factors affecting Productivity 52

6.10 Factors responsible for Competitiveness of the Units

53

6.11 Research and development expenditure and Product innovation

53-54

6.12 Factors affecting competitiveness of the Units 54-55

6.13 Measures taken for boosting domestic & export competitiveness during last five years

55

Chapter VII Recommendations 56-59 References 60-61

ANNEXURE Annexure – 1 (Survey Questionnaire) 62-71

Annexure - 2 (List of Units Contacted for the Study) 72-74

Annexure – 3 (Methodology Adopted for Partial and Total Factor Productivity Estimations)

75-77

IV

LIST OF TABLES

Table No. Particulars Page

No

3.1 Characteristics of Registered Leather Industry in India (Value in Rs. Lakhs, others in Numbers)

16

3.2 Growth of Organized Leather Industry 17

3.3 Labour Productivity Growth in Indian Leather Industry: Segmentwise Analysis

18

3.4 Productivity Estimates for Labour and Capital inputs 19

3.5 Labour, Capital and Total Factor Productivity Growth (%) 20

3.6 Index of Labour, Capital and Total Factor Productivity Growth Rates

21

4.1 Composition of India’s Leather Exports: 1991-92 to 2007-08 22

4.2 Direction of India’s Leather Exports: 1991-92 to 2007-08 24

4.3 India’s exports of finished leather: Destination wise (US$ Million)

25

4.4 India’s exports of leather footwear: Destination wise (US $ Million)

26

4.5 India’s Exports of Leather Goods: Destination wise (US $ Million)

27

4.6 India’s exports of leather garments: Destination wise (US$ Million)

28

4.7 India’s Exports of Leather Footwear Components: Destination Wise (US $ Million)

29

4.8 India’s Exports of Saddlery and Harness: Destination Wise (US$ Million)

30

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4.9 Export Share of Major Leather Producing Countries in the World

31

4.10 Growth in World Trade of Leather and Leather Products 32

6.1 Distribution of Leather & Leather Products Manufacturing Units NPC Field Survey

39

6.2 Average Annual Turnover of the 62 Leather Manufacturing Units State wise (Rs. Lakhs)

41

6.3.a Average Profitability of the Units during 1991-2000 (Number of Responding Manufacturing Units)

42

6.3.b Average Profitability of the Units after 2000 (Number of Responding Manufacturing Units)

42

6.4 Extent of increase in Profitability after 2000 42

6.5 Extent of decrease in Profitability after 2000 43

6.6 Extent of ICT usage in the Unit 44

6.7 Average Employment per Unit 45

6.8 Range of increase in employment 46

6.9 Units engaged in exports (Number of Manufacturing firms) 46

6.10 Percentage of exports to total sales 47

6.11 Growth in export during the last five years 47

6.12 Range of increase in exports during last five years 48

6.13 Import by leather manufacturing units 48

6.14 Level of import of raw materials for units’ Production requirement

49

6.15 Level of import of finished product 49

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6.16 Domestic market share of the manufacturing unit 49

6.17 Share of domestic sales to total sales 50

6.18 Cost competitiveness of the firm during the last five years due to labor productivity

50

6.19 Cost Competitiveness of firms due to Total Factor Productivity 51

6.20 Ratio of various Cost Components in Total Cost of Production–Respondent (%)

51

6.21 Labour productivity during last five years 52

6.22 Research and Development Expenditure by Manufacturing firms

53

6.23 R&D and Product Innovation 54

VII

EXECUTIVE SUMMARY

Leather and Leather Products sector is one of the important sectors among the various constituents of the manufacturing sector in India, mainly due to its contribution towards employment. It is one of the unique sectors which have the advantage of the both value addition and export potential. It also contributes significantly to total manufacturing output and exports from the country.

Leather industry has massive potential for employment, output growth and export. The sector is one of the top eight foreign exchange earners worth over Rs. 10000 crores per annum and accounts for 3% of the global leather-related trade of Rs. 387200 crores. An estimated 15% of total purchase of leading global brands in footwear, garments, leather goods & accessories in Europe, and 10 percent of global supply is outsourced from India. Leather industry has undergone dramatic transformation in the recent years from a mere exporter of raw materials in the sixties to that of value added finished products in the nineties. The Indian leather industry comprises of both organized and unorganized and organized sectors. The organised manufacturing sector broadly consists of tanning and dressing of leather manufacture of luggage, handbags saddlery, harness and footwear. Currently unorganized sector plays a dominant role in the entire production. The small scale, cottage and artisan sectors account for over 75 per cent of the total production and majority of them belong to unorganized sector. Though footwear is produced by both large and small scale sector, the small scale sector has almost 90 per cent share in the total production of footwear in India.

India’s leather and leather products exports have been growing at 6.80% per annum during 1991-92 to 2007-08. Major export destinations are Germany, USA, UK, Italy and Hong Kong. India’s exports of finished leather have been growing at the rate of 6.42% during 1993-94 to 2007-08. Hong Kong is one of the major export destinations of finished leather products. Hong Kong cornered the largest share (42%) of India’s finished leather export in 2007-08.

Leather Footwear: India’s exports of leather footwear have been growing at the annual rate of 3.50% during 1991-92 to 2007-08. The leading importer of Indian leather footwear is UK followed by Germany, USA, Italy, etc.

Leather Goods: India’s exports of leather goods have been decreasing at the rate of 2% per annum during 1991-92 to 2007-08 period. Germany’s position as the major destination of India’s leather goods exports during the early 90’s has changed

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drastically. UK, Spain, Netherlands, Australia, UAE and Belgium have all increased their imports from India.

Leather Garments: Leather garments exports from India have been decreasing at the annual rate of 2.46% during 1995-96 to 2007-08. Germany is the leading importer of leather garments during 2007-08. The share of Belgium and Canada has increased over the years. Leather garments exports to Germany, Italy, USA, France, UK and Netherlands declined over the years.

Leather Footwear Components: India’s exports of leather footwear components have been decreasing at an annual rate of 2.27% during 1995-96 to 2007-08. India’s exports of leather footwear components have increased to Spain, Portugal, France, Switzerland, Slovakia, Austria and Hungar, Italy, Germany and France are the major importers of Indian Leather Footwear components.

Saddlery and Harnesses: India’s exports of saddlery and harnesses have been increasing at the annual rate of 8.96% in the period of 1995-96 to 2007-08. However, the export shares of USA, Germany, France, Netherlands and Australia have been declining.

Globalisation and Prospects for Indian Leather Sector

Currently India has a share of 2.3 per cent (i.e. US $ 2 billion) of global trade of leather and leather products. India has a large and growing middle class of about 250 million people with good purchasing power. Global players in the leather business, big or small are today focusing increasingly on India's domestic market.

The livestock is the raw material for the leather industry. Cattle, buffaloes, goat and sheep are the four live stock species which provide the basic raw materials for the leather industry. India ranks first among major livestock holding countries in the world. In fact, India has the capacity to fulfill 10% of the global leather requirement. The annual availability of 218 million good quality pieces of hides and skins is the main strength of the industry. Along with rich endowment of raw materials, the industry has access to abundant supply of cheap labour. Over the years through government support the industry has been able to develop its R & D facilities considerably. Though there is much to be done in order to meet the challenges of globalization, the industry has established a sound base for the same.

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Growth Constraints

There continues to be acute shortage of good quality finished leather. As a result the industry is dependent on import from China and other countries. Lack of adequate product quality adversely affected exports. On the technology front, most tanneries use outdated technology which inhibits them from producing good quality leather in spite of access to quality raw materials such as hides and skins. Leather industry across the globe has been subjected to stringent pollution control norms due to growing environmental concerns. Since the industry is dominated by small and tiny producers, the availability of finance and the cost of capital turn out to be a major constraint. The Indian footwear component industry which is the pride of India in terms of its contribution to total leather exports is facing stiff competition from China in a number of shoe components - cellulose insole fabrics, coated, impregnated fabrics and interlinings, where the price of the imported materials is between 40% and 50% lower than the indigenously produced materials. Along with the lack of competitiveness, the size of the Indian footwear segment appears to be too small in comparison to that of China. This is evident from the fact that India's share of the global footwear imports is 1.5% while that of China is 14%. The main reason for the low scale of operation in the leather industry and in the footwear segment could be due to the lack of investments in the sector. Over the last 20 years China has attracted more than 10 times of investment that India has attracted. This may be of the fact that for a long time the sector almost in its entirety was in the SSI list. Only after 2001 the leather sector was de-reserved. Field Survey Findings In order to find out the issues and concerns at the firm level a field survey was carried out with structured questionnaires. Firm level details on turnover, employment, domestic and foreign trade, product description, cost related information, factors affecting productivity, factors responsible for competitiveness etc. were compiled.

Majority of the responding units (58%) belong to small scale categories. Nearly 63% responding manufacturing units opined that the quality accreditations boosted their business.

As regards to average profitability after 2000, 76% units reported that there is an increase of profitability. A large majority of manufacturing units reported an increase in export in the recent years. Most of them reported that foreign direct investment is less than 10 percent.

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Average employment across the manufacturing units have been found increasing from 257 employees per unit during 2003-04 to 315 employees per unit during 2007-08. The decline in employment reported during the last year indicates that the sector is facing problems due to increasing competition. The casualization of labour increased during the last five years.

Cost competitiveness of the manufacturing units increased during the last five years. More than 86% units reported that price competitiveness increased during the last five years. However, the product price was reported increasing due to the increase in the import of raw materials during the last five years.

A large majority of manufacturing units (65%) reported an increase in labour productivity during the last five years.

Though the availability of quality human resources increased during the last five years, it is reported to be still short of industry need.

As far as Government interface with business/private sector is concerned, about 69% manufacturers are not satisfied.

Major factors that adversely affected the competitiveness of leather manufacturing in India have been identified as non conducive government policies and taxes, rupee appreciation against dollar, increase in raw material price, poor quality of products, increasing labour cost, infrastructure bottlenecks, intense competition from China, very high interest rate, lack of quality work force, exports clearance problems, higher import and excise duty, high power & water charges, old designs, changes in the foreign buyers taste preferences, preference for branded items, higher income tax rate on export profits, pollution norms etc.

Recommendations:

It is quite apparent that the globalization process though threatens Indian leather sector, provides ample opportunity in the form of potential growth.

Efforts should be made by government and other agencies to improve product quality. through improved design, development and prototyping.

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Emphasis should be put on building brand loyalties for Indian leather products.

Efforts should be made by the council of leather export to concentrate on niche markets like Europe. Also, the industry should focus on women's fashion footwear, where India faces competition mainly from Eastern European countries.

Leather producing units should be given incentives to adopt adequate pollution control measures. Government can evolve support schemes for leather manufacturing units that implements pollution control measures.

Emphasis should be placed on the expansion and modernization of all segments of

the leather industry including tanneries. In fact, there is need for a paradigm shift in the adoption of technology in the leather industry in India.

Not only the rationalization of the duty structure but also all round efforts to be made to encourage existing producers of leather products for technological up gradation.

Modernization will definitely require a heavy dose of investment for which availability of capital will be a major constraint. Since, most of the players in the leather sector are small and tiny industries, the government should take proactive steps for easing the capital constraint.

Encouraging FDI in the leather sector would ease capital constraint and also improve the

quality of Indian leather products. However, in order to increase FDI in the Indian leather sector it is essential to encourage good governance and global bench mark of best practices and provide good infrastructure for the sector.

Development of human resource is an important requirement of Indian leather industry. In

order to increase the availability of a large pool of skilled workers and artisans, efforts should be made to enhance training and capacity building infrastructure in the country.

In order to rejuvenate and drive the Indian leather industry on its potential growth trajectory

there has to be an appropriate detailed policy package and a road map for the fast track growth and development of the sector.

There should be timely and a purposeful review of the policies implemented by the government for the leather sector from time to time.

There is a need for developing a coherent statistical data base on the leather sector with

regular updating.

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Reduction in excise duty for Leather and Footwear Industry should be considered. The Central excise duty has been reduced by GoI as part of the economic stimulus packages Announced on December 7, 2008. The central excise duty on footwear of MRP between Rs. 250/pair to MRP Rs. 750/pair has been reduced from 8% to 4% and for footwear of MRP exceeding Rs. 750/pair has been reduced from 14% to 10% as part of the economic stimulus package. In the stimulus package announced on February 24, 2009, there has been reduction in the general rate of central excise duty from 10 per cent to 8 per cent. The excise duty on footwear of MRP exceeding Rs. 750/pair has now been further reduced from 10% to 8% in the third stimulus package after being reduced from 14% to 10% in the first fiscal stimulus package.

CHAPTER I

INTRODUCTION

1.1 Background The leather and leather products sector has been identified as one of the unique sectors which has the advantage of both value addition and export potential. Apart from the contribution to employment, this sector contributes significantly to total manufacturing output and exports from the country.

The methodology adopted for the present study is based on two pronged approaches. First approach is based on a review and analysis of published data and literature related to the sector. Second approach is to conduct an in-depth field survey of the manufacturing units through structured questionnaires and discussions. The survey has been carried out among middle and top level executives of leather and leather manufacturing units spread across various leather clusters in India. Apart from the unit level investigations, the views of leading experts such as management specialists, technologists, economists, policy makers etc., have also been sought on a host of issues related to the sector.

In the recent years industrial sector has exhibited impressive signs of recovery from a low overall industrial growth rate (based on index of industrial production) of 2.7 per cent in the year 2000-01 to 11.3 per cent during 2006-07. After peaking in the year 2006-07, growth rate of the sector has dipped to 8% in 2007-08 as a result of number of adverse factors such as rupee appreciation against dollar, increase in inflation rates, rising fuel prices, infrastructure constraints, restrictive labour laws, of late global economic recession etc.

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In an era of technology driven growth, very few manufacturing activities contribute significantly to employment. The manufacturing of leather and leather product is one such sector which contributes considerably to employment generation in the manufacturing sector though it has a meager (1.1 per cent) weight in the Index of Industrial Production (IIP). Moreover, this sector is among a few sectors that can benefit from globalization due to comparative cost advantages that India enjoys.

Indian leather industry, provides employment to 2.5 million persons and has access to cheap raw material, skilled labour, and a vibrant domestic market. Probably these are some of the important ingredients on which Indian leather industry rely on to face the challenges in the coming years. Global players have shown considerable interest in Indian leather sector and leading leather brands from the US and Europe are sourcing leather and leather products from India. Thus, Indian leather industry has a significant potential to grow and to provide large-scale employment opportunities.

1.2 Chapter Scheme

This study report has been presented in six chapters. Chapter II presents an overview of leather industry in India. Chapter III discuss productivity perfofrmance of Indian leather & leather goods sector. Chapter IV analyses the trends in exports of leather products from India. Chapter IV analyses the prospects of Indian leather industry in the wake of globalization and provides a SWOT analysis. Chapter V provides the feedback received from the field survey of leather manufacturing units and other stakeholders spread across India. Chapter VI presents recommendations emerging from the study. 1.3 Limitations & Constraints

Keeping in view of initially set scope of work that was mainly to focus the study on secondary data sources, which has its own inherent limitations as a result of reliability in working out the projections, in order to substantiate the secondary data field evidences have been also included through a primary survey later on. Due to the limited resources available in terms of finance, the field survey was undertaken with limited scope and coverage. However, efforts have been made to minimize such constraints by analyzing various data sources in order to arrive at broad recommendations for the development of the sector. The recommendations have been formulated considering its implementability.

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CHAPTER II

LEATHER AND LEATHER PRODUCTS SECTOR: AN OVERVIEW

2.1 Introduction

Leather industry occupies a prominent place in the Indian economy because of its massive potential for employment, output growth and export. Currently, the industry employs about 2.5 million persons of which 30% are women. Nearly, 50 per cent of the total domestic production is exported. The sector is one of the top eight foreign exchange earners of the country and accounts for 2.5% of the global leather-related trade worth Rs. 387200 crores. In India, leather exports are growing at an annual rate of 5-6 per cent per annum (CII, 2006). The Indian leather industry includes both formal as well as informal sectors from small artisans to global players and produces a wide range of products from raw hides to fashionable shoes. Specialized institutions like Council for Leather Exports (CLE) and Central Leather Research Institute (CLRI) have been set up to promote the overall performance of the leather sector.

The leather industry has undergone dramatic transformation from a mere exporter of raw materials in the sixties to exporter of value added finished products in the nineties. The share of value added finished items in the total exports from the leather sector have reached 80 percent now against 20 percent in the 1970s. The Policy initiatives taken by the Government since 1973 for the development of the sector through optimal utilization of available raw materials have been instrumental in the phenomenal transformation of the leather industry.

One important policy initiative taken by the government includes liberalization of the leather sector. Government has de-reserved the manufacture of various types of leather viz. semi-finished leather, harness leather, leather shoes etc., which are produced by small-scale sector. Moreover, government is setting up exclusive shoe component parks for meeting the demands of the global sourcing majors. It is expected that Indian foot wear industry will grow leaps and bounds at a rate of 10% to 15% in the future years. To tap the huge domestic footwear market, branded players are establishing footwear supermarkets in India.

2.2 Structure of Leather Industry

Important aspects of the industrial structure can be categorized into product segments and structural components. In the following sections we analyze these two aspects separately.

2.2.1 The Product Segments

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The Indian leather industry comprising of both organized and unorganized sector, produces wide range of leather products. The organized sector of leather products broadly consists of tanning and dressing of leather (NIC Code- 1911), manufacturing luggage, handbags saddlery, harness (NIC Code-1912) and footwear (NIC Code-1920). However, the unorganized sector along with the above broad category of leather products produces a number of other leather items. In order to have a clear picture of the industry we focus on four major items produced by the Indian leather industry. These four items constitute the various product segments of the Indian leather industry.

(a) Leather footwear (b) Leather footwear components (c) Leather garments (d) Leather goods

(a) Leather Footwear: Among the above mentioned product segments, the footwear segment is the pride of Indian leather industry. It ranks second in the world, next to China. India is the world's second largest producer of footwear with estimated production of more than 700 million pairs per annum. Footwear accounts for 18 percent share of total exports of leather products worth U.S. $300 million per annum.

Various types of shoes produced and exported by India are dress shoes, casuals, moccasins, sports shoes, huaraches, sandals, ballerinas, and booties. Major production centers are Chennai, Delhi, Agra, Kanpur, Mumbai, Kolkatta and Jalandhar. Most of the Indian manufacturers of modern footwear are already supplying to major brands in Europe and USA.

In the last five years, the leather footwear and footwear component production increased by 60%. Interestingly, despite producing more of gents` footwear India is major producer of ladies footwear in the world.Though, the Leather Industry, (especially the Footwear industry) has made a strong contribution to the Indian economy, India's share in global trade remains as low as U.S. $ 30 billion.

Being a labor intensive industry, its contribution to employment is significant which consists of a large chunk of illiterate workers. About 40% of employment is represented by unskilled workers indulged in table work operation in the assembly line. Minority community and lower caste people have their sole source of livelihood from collecting carcasses, skinning dead animals and tanning leather which also consist a large proportion of employment provided by leather industry.

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(b) Leather Footwear Components: Leather footwear component is another important segment of the Indian leather industry. The product range in this segment includes shoe Uppers, Sandal Uppers, Moccasin Lasted Uppers, Unit soles, Insole and Sock Linings etc. which are mainly exported to UK, Germany, Italy, USA., France, Portugal, Switzerland, Spain, Netherlands and Austria. The important production centers for this segment are Agra, Ambur, Bangalore, Chennai, Delhi, Jallandhar, Kanpur and Mumbai.

(c) Leather Garments: The Leather Garment segment occupies a significant place in the Indian leather industry. The product classification of leather garments comprises of jackets, long coats, waist coats, shirts, pant/short, children garments, motorbike jackets, aprons and industrial leather garments.

Indian leather garments sector entered the world market in the mid-eighties. It accounts for nearly $ 300 million of exports. Germany is a major export market for leather garments. India, China and Turkey were the major suppliers of leather garments to the German market and accounts for about 78% of the market share. Among the three major exporting nations of leather garments, India has captured 20% of market share in both German and EU markets. Other markets for India are Italy, U.K., U.S.A. France, Spain and Netherlands. Denmark, Switzerland and Canada are among latest export destinations.

(d) Leather Goods: The leather goods segment of Indian leather industry range from designer collections to personal leather accessories, comprising of a wide range of products. And its share is nearly 21 per cent in Indian leather industry. This product segment includes the products like bags, handbags, hand gloves, industrial gloves, wallets, ruck sacks, folios, brief cases, travel ware, belts, sports goods, upholstery saddlery goods etc. The production of these items mainly takes place in large number of units located in Chennai, Kanpur and Calcutta. Significant feature of this is that it employees skilled labor and they are equipped with modern and sophisticated machinery. This segment meets the requirements of bulk buyers and consumers in Europe, USA and Australia.

The major market for Indian leather goods segment is Germany, with an off take of about 25 per cent of the leather goods produced in India followed by USA, UK, France and Italy. This leather goods segment has maintained an average growth rate of 11 per cent during the last five years.

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2.2.2 Production structure of Leather Industry

Unorganized sector plays a dominant role in the entire production of leather and leather products. The small scale, cottage and artisan sectors account for over 75 per cent of the total production. Though the small scale industries (SSI) are classified as organized sector most of them are in the unorganized sector. A contrast of product segments with the production structure of the leather industry in India reveals that while footwear production is undertaken both in large and small scale sectors, leather garments and other products are mainly produced in the small-scale sector. In fact, though footwear is produced both in the large and small scale sector, the small scale sector has almost 90 per cent share in the total production of footwear in India. There are about 42,000 registered SSI units in India producing leather footwear.

Location wise Indian leather industry can be divided into 5 regions namely, southern region, northern region, eastern region, western and central region. Among the five regions southern region is relatively wide spread and comprises states like Tamil Nadu, Andhra Pradesh and Karnataka. Chennai, Ambur, Ranipet, Vaniyambadi, Trichy and Dindigul are the major producing centers in the state of Tamilnadu. Whereas, the capital cities of Hyderabad and Bangalore are the major production centres in the state of Andhra Pradesh and Karnataka respectively. Tamil Nadu is the leading state in India in terms of number of registered factories for leather and footwear industry. The state of Tamil Nadu had 37% (810) of total leather and footwear factories in India at the end of 2004-05. In the northern region the state of Punjab and national capital territory of Delhi are the two main producing locations. Jallandhar is the major producing centre in Punjab. In the eastern region West Bengal is the only state which produces leather and leather products significantly where kolkata is the major producing centre. In the western region, Maharastra is the major producing state for leather and leather products where Mumbai is the major producing centre. Similarly, in the central region Uttar Pradesh is the major producer with Kanpur and Agra as the two major producing centers. Uttar Pradesh is the second major state in India in terms of number of registered factories with 15% of total factories in India at the end of 2004-05. The states of Tamil Nadu and Uttar Pradesh together accounted for 52% of total factories in 2004-05. West Bengal and Punjab are the other key states in India with significant number of registered leather and footwear manufacturing units. The following map provides the distribution of leather production centers across the country.

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The nature of these production centers varies in terms of the distribution of producing units and product segments. For example, the small scale industries producing leather are mainly concentrated in the state of Uttar Pradesh and Tamil Nadu.

As far as the concentration of various product segments are concerned, Agra and Ambur are the major production centers of footwear and footwear components. Similarly, Bangalore, Chennai, Delhi, Hyderabad etc are leading producers of leather apparels whereas Kanpur, Kolkata, Mumbai etc are the major producing centers for of leather accessories. Thus, the different production centers cater to different segments of leather industry. Nevertheless, there is a great deal of overlapping in this respect also because various segments of the leather industry are more or less interrelated due to scale benefits on account of location.

2.3 Wages Salaries in Leather Sector

In the leather industry, that both female and male workers are offered the same wage and there is no discrimination against female workforce. The total number of shifts across firms is approximately in the region of 26 per month. Large variations in wages paid to workers across firms are observed. These variations are noticeable in terms of both payments made via piece rates or monthly wages.

Since the work in this industry is very skill based and people with any prior industry training are always preferred. Such workforce is scarce in supply.

In the case of machinery usage, it is observed that across most units, firms have increased their machinery usage. This shows that leather manufacturing units across the country are purchasing more machines and upgrading their technology as new machines by and large embody better and improved technology of production.

Mixed response is found to adoption of modern technology in the recent past. It is asserted that this is due to the fact that large firms have the financial capability to undertake investment in modern machineries and hence consider technological up gradation as a natural phenomenon of moving to a higher end of value chain. On the other hand, small firms because of several constraints- skilled manpower, expensive machinery and fluctuating market demands are unable risk technological up gradation.

2.4 Competitive Benchmarking

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The competitive benchmarking of India has been done with China, Italy and Brazil to identify the areas where India has competitive advantages and disadvantages as compared to these countries. The exports of India have registered CAGR of 3.61% from 2000 to 2006 as compared to 10% achieved by China. While the exports of India has registered a higher CAGR as compared to Italy and Hong Brazil which are the other two major exporters of leather and footwear products, the analysis of the value of exports show that the share of India in total exports of leather and leather products in world is very low at 3.14%. The higher CAGR of India can also be attributed to lower exports in absolute terms in 2001 as compared to Brazil and Italy.

The labour productivity index of India is among the lowest in the Asian Countries at 0.94 in 2005 as per the study conducted by Asian Productivity Organisation (APO). Mongolia and China have the highest labour productivity index at 1.65 and 1.56 in 2005. The labour productivity in India is very low as compared to China in production of shoes, garments and leather goods. The pairs of shoes per employee per day in India are 20 pairs as compared to China which was at 40 pairs. Similarly, the pieces of leather goods per employee per day in India are low at 6-8 pieces as compared to China at 12-15 pieces. The labour productivity of India has been impacted due to rigid labour laws like lack of flexibility in contract labour laws. Units employing over 100 people currently fall under the purview of Industrial Disputes Act. The Act stipulates that employers must obtain necessary approvals to effect lay-offs. This proves to be a hindrance especially for small and medium enterprises.

2.5 Measures for Anti Dumping by Companies in India

As in most other countries, protection appears to have been the dominant motivation behind the levying of anti dumping duties in India. General Agreement on Tariffs and Trade (GATT) therefore contains some contingent measures, which permit the signatories to withdraw their normal obligations under specified circumstances and impose higher protection against import of one or more goods from one or more countries. Contingent protection measures fall under three categories -- antidumping, countervailing and safeguard measures. Anti-dumping duties are expected to overcome only the problem of dumping. To deal with the problem of direct and indirect Government subsidies there is provision for countervailing duties. In both cases injury and causal link must necessarily be proved. Safeguard measures dealing with the problem of "increased imports" and neither dumping nor subsidies need be present. For safeguard measures to be implemented serious injury to the domestic industry is required to be established. Some safeguard measures are tariff increases or quantitative restrictions; it remains a sparingly used measure, as compensation may have to be paid to the trading partners in appropriate cases.

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The subject of anti dumping is very topical and highly controversial. There seems to be some ambiguity in the definition of trade-distorting phenomenon ''dumping''. A product is said to have been dumped in the Indian market if it is introduced into the commerce of the country at less than the normal value of the product and it causes/threatens material injury to an established industry of the country. The phenomenon of dumping is per se not condemnable as it is recognized that producers sell their goods at different prices to different market. Differences in price are also due to demand and supply. Export prices are generally lower than domestic prices. However, where dumping causes or threatens to cause material injury to the domestic industry of India, the Authority (Ministry of Finance) initiates necessary action for investigations and subsequent imposition of anti-dumping duties. Normal Value is the comparable price at which the goods are sold, in the ordinary course of trade. The Normal Value cannot be determined by means of domestic sales. The act provides for the following two alternative methods.

1. Comparable representative Export Price to an appropriate third country. 2. Cost of production in the country of origin with reasonable addition for administrative,

selling and general costs and for profits.

The 'Margin of Dumping' is generally expressed as a percentage of the Export Price. It refers to the difference between the Normal Value of the similar article and the Export Price. Article VI of the GATT states the measure to prevent dumping. Most WTO member countries have adopted/amended their antidumping legislation largely in accordance with the GATT provisions to deal with dumped imports. Pursuant to GATT 1994 detailed guidelines have been prescribed under the specific agreements which have also been incorporated in the national legislations of the member countries of the WTO.

Since 1-1-95 Indian Laws have been amended in order to bring them in line with the provisions of the respective GATT agreements. Sections 9A, 9B and 9C of the Customs Tariff Act, 1975 and the corresponding Customs Tariff (Identification, Assessment and Collection of Anti-Dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995 there under form the legal basis for anti-dumping investigations and for the levy of anti-dumping duties. Some have raised questions about the ambiguities in antidumping regulations and procedures; others have questioned the economic rationale behind such laws.

Imposition of Anti Dumping Duty is based on commodity to commodity, country to country and suppliers in exporting countries. Global Trade Protection (GTP) report has reported that global anti-dumping activity has remained at relatively low levels in 2005 and 2006. The reason being that commodity type prices remain relatively high etc., a) less dumping is taking place and b) it can be difficult to establish that domestic industries are injured. Despite the relatively low levels of anti-dumping activity worldwide. In India, the numbers of anti-dumping cases have increased substantially over the last five years.

China continued to be the main target of anti-dumping cases in the recent years. Interesting to note, is the fact that there is a significant upward trend towards China as a target. The proportion of global anti-dumping initiations against China has been significantly increasing in recent years. The Global Trade Protection Report has found that global trade protection activity in the first six months of 2007 was at a record low since the creation of the WTO.

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The GATT agreement as well as the Indian laws provides that the injured domestic industry is allowed to file for relief under the anti-dumping as well as countervailing duties. However, the same articles shall not be subjected to both countervailing and anti-dumping duties to compensate for the same situation of dumping or export subsidization.

The investigation process involves the following steps:

1. Screening - the document is scrutinized and if the evidence is not adequate, then a deficiency letter is issued normally within 20 days of the receipt of the application.

2. Initiation - Public Notice is issued initiating an investigation to determine the existence and effect of the alleged dumping. The Designated Authority notifies the diplomatic representative of the Government of the exporting country before proceeding to initiate the investigation, within 45 days of the date of receipt of a properly documented application.

3. Access to information - Non-confidential evidence is provided.

4. Preliminary Findings - in appropriate cases, finding containing the detailed information on

the main reasons behind the determination within 150 days of initiation.

5. Provisional Duty - not exceeding the margin of dumping, but only after the expiry of 60 days from the date of initiation of investigation and will remain in force only for a period not exceeding 6 months, extendable to 9 months

6. Oral Evidence - request to opportunity to present the relevant information orally, but

subsequently it must be reproduced in writing. 7. Final Determination - within 150 days of the date of preliminary determination. 8. Disclosure of Information - interested parties must be informed of the essential facts which

form the basis for its decision before the final finding is made. 9. Time-limit for Investigation Process - one year from the date of initiation of the

investigation, but maybe extended for an additional six months. 10. Termination - under specified cases.

A retrospective application will not go beyond 90 days of the date of imposition of provisional duty. An anti-dumping duty imposed under the Act shall have the effect for 5 years from the date of imposition, unless revoked earlier. An appeal against the order of the Designated Authority may be filed with the Customs, Excise and Gold (Control) Appellate Tribunal within 90 days of the date of the order. The Legislation provides for the collection and refund of duty.

Another aspect of dumping which is not altogether trivial is the fact that, against the background of a once hungry-for-imported-goods country, countries try to sell, and mostly succeed in selling, to India goods which would not be saleable in their own countries mainly by virtue of quality

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and age -- time elapsed and time remaining in relation to manufacturing date. It appears that there are no barriers in India at which these types of goods are stopped and checked.

2.5.1 Chinese footwear remains controversial in EU

In October 2008, the European Union (EU) initiated an expiry review of anti-dumping duties on footwear with leather uppers from China. EU anti-dumping measures are normally adopted for a 5 year period. However, due to the extremely political nature of the footwear anti-dumping investigation, measures in this case were exceptionally adopted for only 2 years. This reflected the fact that there was a large involvement of retailers and importers in the investigation, significant because the EU has a public interest test (“Community interest”) before measures can be adopted. The expiry review is just as controversial. Fifteen of the 27 EU Member States opposed the initiation of an expiry review, believing that the measures should be allowed to expire after the 2 year duration. At initiation, the European Commission is only obliged to consult the Member States and thus the investigation was initiated. However, if the Commission determines that the measures should continue, 15 Member States would be sufficient to block the continuation. Ultimately, Member States must adopt the measures proposed by the Commission and a simple majority (14) is sufficient to force the expiry of the measures. The duty remains in place during the expiry review. The Commission stated in a press release that it would work to complete the review as expeditiously as possible, if possible in shorter than the usual timeframe of 12-15 months.

2.6 The Regulatory Regime

The continuous support of the Government has resulted in massive transformation of the Indian leather and leather products sector. As maintained earlier, the industry which was a mere exporter of raw material in the sixties has now become one of the major exporters of the value added finished products.

Recognizing the opportunities for Indian leather industry from globalization, the government over the last decade and a half has under taken several initiatives. Those initiatives may be broadly divided into two categories. One is competitiveness enhancing initiatives (those, directly affect the competitiveness) and the other is the trade facilitating initiatives (those affect the exports). Of course, the trade facilitating initiatives also affect the overall competitiveness of the industry, but they affect indirectly. Nevertheless, it is important to have a discussion of these broad categories of initiatives undertaken by the government to improve the performance of the leather industry in India.

2.6.1 Competitiveness Enhancing Initiatives

The government over the last decade and a half has undertaken various measures in order to enhance the competitiveness of leather industry in India. Some of the important measures are be the followings. Firstly, as a part of the liberalization measures, most of the items of manufacture in the leather sector have been de-licensed. And the Government has de-reserved the manufacture of various types of leather including semi-finished leather, harness leather, leather shoes etc. from small-scale sector.

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Secondly, National Leather Development Programme (NLDP) was implemented from April 1992 to September 1998 with the assistance from UNDP. The programme aimed at integrated development of the leather industry through selected institutions/agencies in the country.

The programme was successful in creating institutional facilities of international standards and capacity to meet the requirements of trained man-power. In order to consolidate the gains of this project and in line with sustainable human development concerns, Phase-II of the programme, namely, SIDE-NLDP (Small Industries and Development and Employment Programme in leather sector) was launched with UNDP assistance of US $ 7 million in September, 1998.

Thirdly, the Indian Leather Development Programme (ILDP) was implemented as one of the Ninth Plan programmes to complement NLDP. The objectives of the ILDP were mainly to bridge critical gaps in the infrastructure for integrated development of the leather industry, activate national agencies towards tackling gaps in the industry, to promote productivity, value addition, encourage investment, trade development and building up of information base for the leather industry.

Fourthly, National Leather Technology Mission (NLTM) was launched in 1995 for integrated development of tanning sector. The programme mainly focused on areas like augmentation of raw material requirements of the leather industry and promotion of environmentally cleaner leather processing methods through use of modern technology. NLTM had a total of 172 activities covering 16 states in the country. In fact, the support for tannery modernisation was given a very high priority under all the aforesaid programmes.

Fifthly, on June 30, 2005, the Cabinet Committee on Economic Affairs (CCEA) had decided to implement Rs 2.9 billion scheme for the integrated development of the leather sector. Under this scheme, modernization of existing tanneries and setting up of new units for footwear, components and leather products were planned. This scheme is expected to result in gains in terms of productivity, right-sizing of capacity, cost-cutting, and design-development.

Apart from the above initiatives which have direct implications for the competitiveness of Indian leather industry, the government has undertaken several other initiatives in the recent years which are basically trade facilitating in nature i.e. they aim at improving the prospects of export for Indian leather goods.

2.6.2 Trade Facilitating Initiatives

National Foreign Trade Policy (FTP) 2004-09 is perhaps one of the major initiatives which aims at improving export prospects of Indian industries in general. However, some of its components grossly address the trade concerns of the Indian leather industry in particular. Apart from those subcomponents, there are various other steps which the government has undertaken in recent years in order to improve the export prospects of Indian leather goods. The followings could be

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considered as some of the important trade facilitating initiatives of the government in the recent years. Firstly, FTP 2004-09 primarily focuses on procedural simplification and trade facilitation measures. As a result several schemes which were hitherto un-availed by the exporter have turned out to be attractive.

Secondly, the formation of Inter-State Trade Council to facilitate an enabling coordination between the Central and State Governments in trade policy matters is a very significant step towards increasing export of Indian industries in general and leather industries in particular.

Thirdly, the Export Promotion Capital Goods Scheme ( EPCG) scheme has been made further attractive to the SSI sector, as the export obligation has been brought down from 8 times of duty saved to 6 times and procedures for availing the EPCG scheme has been simplified.

Fourthly, the Advance License scheme has also been made more attractive with the introduction of various procedural simplification measure, more particularly, all categories of exporters having past export performance can now avail the Advance License for annual requirement, instead of the earlier practice of restricting the facility to only status holders. Similarly, the special facility introduced to the Status Holders in the erstwhile EXIM Policy 2003-04 has also now been operationalized. The schemes would definitely incentivise the industry to aim at aggressive growth.

Fifthly, a single common form called Aayaat Niryaat Form has been introduced which is a 50 page set of forms as against the earlier 120 page set.

Sixthly, the export obligation on production of goods reserved for the small scale sector in the organized sector has been brought down from 75 percent to 50 percent to encourage exports while providing a reasonable safeguard to the small scale and cottage sector. Non-SSI units can, however, take up manufacture of finished leather from semi-finished stage without any export obligation.

Seventhly, the government has allowed the import of raw materials and machinery and components under Open General License (OGL) at concessional rates of duty.

Eighthly, government has made efforts to encourage domestic manufacturer of components by promoting joint ventures and by duty rationalization on inputs.

Ninthly, the product segments like tanned/dressed fur skins and chamois leather has been removed from the list of industries requiring compulsory licensing.

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Tenthly, in tune with the growing demand for footwear, the government is setting up exclusive shoe component parks for meeting the demands of the global sourcing majors. Finally, the Prime Minister has recently approved development of leather sector under the Mission Mode, since various ministries like the Animal Husbandry, Rural development, commerce and industries, Finance etc are involved in the development of this sector. Consequent upon the approval of the Mission Mode, the Planning Commission has constituted an Inter Ministerial Committee so that the inter-ministerial issues could be sorted out in a single forum. With all such pro-active policy initiatives undertaken by the government in recent years, it is expected that the share of Indian leather industry in the global leather trade will increase from the present 2.32% to 4.2% by 2010, thereby its exports in value terms will enhance from the present Rs.10000 to Rs.20000 crore, and in the process the industry will provide an additional employment to about one million people. However, the Expectations would get translated into reality if and only if the Indian leather industry grows significantly in the coming years. In an era of globalization there are two important things which govern the growth. One is the opportunity available from the globalization and the other is the competitive potential of the industry to capitalize the opportunity. Therefore, it is pertinent to analyse the prospects for Indian leather industries from globalization.

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CHAPTER III

PRODUCTIVITY OF LEATHER & LEATHER PRODUCTS SECTOR

3.1 Introduction

This chapter analyses productivity performance of organized registered manufactures. The organized factory sector occupies an important position in leather production in India.* Though its share is less in comparison to unorganized sector, its importance cannot be under estimated. Structurally, the organized factory sector consists of both small scale and large-scale registered enterprises. The developments in the organized factory sector are easily visible and the implications of government policy (both domestic and global) can be easily assessed since the data are available on a continuous time series Considering these facts an attempt has been made in the following sections to analyse the leather industry (organized factory sector/ registered manufacturing) in India. 3.2 The Key Features of the Registered Factory Sector A brief look at the leather sector (registered manufacturing) at the all India level suggests that the industry has not experienced any significant growth in terms of Gross Value Added the years (Table 3.1). However, compound annual growth rate of employment during 1980-81 to 2005-06 has shown positive trends at an annual rate of 2.36 per cent. By 1990-91 total employment, value of output and value added declined in absolute terms as compared to 1980-81 levels.

In the 1990s however, the industry has recovered. A comparison between the levels of 2000-01 and 2005-06 reveals that the value added and value of output has started showing signs of recovery (Table 3.1). The number of workers and the number of factories have also increased considerably during this period.

Thus, the above analysis suggests that the organized leather industry in India has started showing signs of growth in the recent years as compared to nineties. This probably indicates that the measures adopted during economic liberalization did help the organized segment of leather manufacturing in India.

*(Factory is one that is registered under sections 2m (i) and 2m (ii) of the Factories Act, 1948. The sections 2m (i) and 2m (ii) refer to any premises including the precincts thereof (a) whereon ten or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power, or is ordinarily so carried on; or (b) whereon twenty or more workers are working or were working on

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any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on without the aid of power, or is ordinarily so carried on).

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Table 3.1: Characteristics of Registered Leather Industry in India (Value in Rs. Lakhs, others in Numbers)

Source: Computed from Annual Survey of Industries, CSO, Summary results of Factory Sector

3.3 Data and Variables

Gross value added (net value added + depreciation) has been considered for the estimation of productivity ratios. In order to eliminate the price effect from the increasing value added, the gross value added figures have been deflated by using the whole-sale Price Index (WPI). From the WPI, the price index for the leather and leather products at 1993-94 base prices has been taken into account for deflating the data on gross value added since it covers all categories of the products from the sector.

3.4 Growth Rate Analysis of Leather Industry

A period wise growth analysis of the organized leather industry in India has been presented in table 3.2

Indicators 1980-81

1990-91

2000-01

2003-04 2004-05 2005-

06

Number of Factories 1298 1782 2378 2337 2293 2444

Number of Workers 97305 92915 114467 118154 126604 146704

Gross Value Added (Constant Prices 1993-94=100)

138897 127438

88996

92673 87899 117894

Value of Output (Constant Prices 1993-94=100)

718276 407316 637945 649808 657968 783405

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Table 3.2: Growth of Organized Leather Industry

Period I

(1980-81 to 1990-91)

Period II

(1990-91 to 2000-01)

Period III (2000-01 to

2005-06) Indicators

Compound Annual Growth Rate (CAGR) (%)

Gross Value Added (At Constant Prices)

-0.86 -4.39 5.79

Value of Output (At Constant Prices) -5.51 5.77 4.19

No. of Factories (Nos) 3.22 3.67 0.55

Workers (Nos) -0.46 2.64 5.09

Note: Labour Productivity has been estimated as GVA/Number of Workers


Value of Output (at constant prices) has been found increasing continuously during the liberalization period. Though eighties was a decade of better industrial growth, the leather industry did not perform well resulting in negative growth rates. Nevertheless, the sector has experienced a great deal of recovery in the decade and a half of liberalization. Internal liberalisation and trade reforms have certainly helped the leather industry to gain some market share in the world market. However, the extent to which Indian leather industry can survive or grow or emerge as a leader depends on its competitive potential. Since, the leather industry, be it organized or unorganized, across the globe is basically labour intensive, the improvement in labour productivity will primarily govern the competitiveness of the sector.

3.5 Labour Productivity Growth

Table 3.2 has given an overall picture of labour productivity growth in the leather industry. However, it is pertinent to have a look at the labour productivity across various broad segments of the leather industry in India. Labour productivity growth across different segments of leather industry has been presented in table 3.3.

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Table 3.3: Labour Productivity Growth in Indian Leather Industry: Segmentwise Analysis

Industry Code

Period I:

1980-81 to 1989-90

Period II:

1990-91 to 1999-00

Period III:

2000-01 to 2004-05

Tanning and Dressing of Leather

1911 -1.39 4.99 3.79

Manufacture of Luggage, Handbags, and the like, Saddlery and Harness

1912 11.76 4.70 0.36

Manufacture of Footwear

1920 -11.20 4.33 -4.95

Entire Leather Industry

1911+1912+1920

-9.40 4.36 -2.31

Note: Labour Productivity has been estimated as GVA/Number of workers


It may be seen from tables 3.3 that labour productivity in different segments of the leather industry has been growing consistently since 1990-91. Of course, the only exception has been the manufacture of Luggage, Handbags and the like, Saddlery etc. Unlike other sectors it did not experience negative growth in labour productivity in the eighties. And also this segment had experienced a decline in growth rate during nineties while all other segments improved in terms of labour productivity growth. Interestingly, this sector exhibits the highest growth in labour productivity in the recent years. The contrasting performance of manufacture of Luggage, Handbags and the like, Saddlery etc. among other segments the leather industry in India could be due to the fact that this segment prominently focus on the domestic market.

In the recent years, riding on domestic growth and opportunities of globalization, various segments of Indian leather industry have started performing well, particularly in terms of growth in labour productivity. However, the major concern is that the footwear sector, the pride of Indian leather industry in the global market trails behind other segments in terms of labour productivity growth.

Hence, in order to enhance the competitive edge of the leather industry, it is important that labour productivity need to be improved considerably across all segments of the industry especially for the footwear segment. A recent study on labour intensity and employment potential of Indian manufacturing (ICRIER, 2008) estimates employment growth in this sector. The study reports consistent decline in

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employment from around 19 percent ( 1990-95) to about 5 percent (2000-2003). In addition, the L/K ratio is also seen declining- 1.27(1990-95), 0.89(1996-99) and 0.58 (2000-03).

3.6 Partial and Total Factor Productivity Analysis of Leather Industry

In this section we analyse partial productivities (labour and capital) and total factor productivity growth (TFPG). The detailed methodology adopted for the estimation of partial (labour & capital) and TFPG are given in Annexure 3. The estimated partial productivity ratios for both labour and capital factor inputs are given in table 3.4.

Table 3.4: Productivity Estimates for Labour and Capital inputs

Year Capital productivity

(at Per Rupee Invested)

Labour Productivity

(at Per Person Employed)

1995-96 0.64 60976

1996-97 0.63 64866

1997-98 0.83 79710

1998-99 0.62 79748

1999-00 0.68 88107

2000-01 0.49 64385

2001-02 0.64 70170

2002-03 0.66 60553

2003-04 0.75 63490

2004-05 0.73 58647

2005-06 0.84 67797

Note: Productivity has been estimated as GVA/Factor imput

Source: Estimated from ASI- Summary results of factory sector, CSO.

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From table 3.4 it may be noted that partial productivity estimations for labour and capital productivity at the all India level have reported wide fluctuations during 1995-96 to 2005-06 period. Capital productivity was found fluctuating in the range of Rs. 0.49 to Rs. 0.84 while labour productivity was found in the range of Rs. 58647 to Rs. 88107 during 1995-96 to 2005-06.

Table 3.5 provides year on year growth rate estimations for capital, labour and total factor productivity growth. It may be noted that capital productivity growth during 1995-96 to 2000-01 was quite negligible while 2000-01 to 2005-06 period exhibited negative growth at the rate of -5% per annum. However, labour producyivity growth reported positive growth for both periods at 2% and 1% respectively. In the case of Total Factor Productivity Growth we find annual average growth rate at 1% during 1995-96 to 2000-01 and 2% during 2000-01 to 2005-06.

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Table 3.5: Labour, Capital and Total Factor Productivity Growth (%)

Year Capital

Productivity Growth

Labour Productivity

Growth

Total factor Productivity

Growth

1995-96 -- -- --

1996-97 -1.93 6.38 0.99

1997-98 31.82 22.88 -9.51

1998-99 -25.55 0.05 14.52

1999-00 9.25 10.48 -3.79

2000-01 -27.55 -26.92 10.80

2001-02 30.36 8.98 -19.71

2002-03 2.81 -13.70 8.21

2003-04 14.57 4.85 -4.39

2004-05 -2.84 -7.63 3.75

2005-06 14.40 15.60 14.46

Average for the Period 1996-97 to

2000-01 -2.79 2.57 2.60

Average for the Period 2000-01 to

2005-06 5.23 0.34 4.93


Since the annual growth rates exhibit wide fluctuations, for getting a better picture of the growth rate analysis it has been depicted in an index form in table 3.6. Among the three growth rates capital productivity has reported the highest index at 145.34 by 2005-06, while labour productivity has reported 120.97 and Total Factor Productivity has grown to 115.33.

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Table 3.6: Index of Labour, Capital and Total Factor Productivity Growth Rates

Year Capital Labour Total factor Productivity

Growth Index

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Source: Computed from Annual Survey of Industries, CSO, Summary results of Factory

Sector

Though TFP is lower as compared to Capital and Labour Productivity Growth, it may be noted that technology plays a significant role in the growth of leather and leather products sector in India. Therefore, it may be noted that technology upgradation schemes are vital for making the sector more productive and competitive in the global setting.

Index of Labour, Capital and Total Factor Productivity Growth Rates

1995-96 100.00 100.00 100.00

1996-97 98.07 106.38 100.99

1997-98 129.89 129.26 91.48

1998-99 104.34 129.31 106.00

1999-00 113.59 139.79 102.21

2000-01 86.04 112.87 113.01

2001-02 116.40 121.85 93.30

2002-03 119.21 108.15 101.51

2003-04 133.78 113.00 97.12

2004-05 130.94 105.37 100.87

2005-06 145.34 120.97 115.33

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CHAPTER IV

EXPORT TRENDS IN LEATHER AND LEATHER PRODUCTS

4.1 Introduction

The importance of exports in the growth of an industry cannot be underestimated in the era of globalization. The exports of leather and leather products to the rest of the world have registered a steady increase over the years as it increased from 1279.19 million US $ in 1991-92 to 3433.30 million US $ by 2007-08 (Table 4.1).

The global trade in leather and footwear is expected to further increase after the abolition of quota regime in January, 2005. The relative shares of the components have changed over the years. The share of leather footwear has declined over the years from 36.56% to 33.92% and even the share of saddlery and harness has registered a small increase over the years from 1.20% in 1995-96 to 3.08% in 2007-08. The shares of leather garments and leather footwear components have registered a steep decline over the years and the share of finished leather and leather goods has declined marginally in the past few years but ultimately increased in 2007-08 as compared to 1995-96.

Table 4.1: Composition of India’s Leather Exports: 1991-92 to 2007-08

US $ Million

Product Categories 1991-92 1995-96 2000-01 2003-04 2005-06 2006-07 2007-08

Leather footwear 467.26 340.92 381.99 553.42 786.65 950.90 1164.39

S hare % 36.56 19.42 19.61 25.56 29.96 31.89 33.92

Leather goods 810.93 363.14 441.09 539.58 649.04 690.66 785.33

Share % 63.44 20.69 22.65 24.92 24.72 23.16 22.87

Finished leather -- 371.85 382.11 556.09 605.97 688.35 767.31

Share % -- 21.18 19.61 25.69 23.08 23.09 22.35

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Leather garments -- 414.21 461.21 301.29 328.39 306.98 344.16

Share % -- 23.60 23.68 13.91 12.50 10.30 10.03

Leather footwear components

-- 243.33 238.48 161.38 179.01 212.65 266.24

Share % -- 13.86 12.24 7.45 6.81 7.13 7.76

Saddlery and Harness

-- 21.38 42.73 52.75 76.39 81.85 105.87

Share % -- 1.20 2.19 2.43 3.08

Total leather products

1279.19 1754.84 1947.61 2164.51 2625.46 2981.79 3433.30

Source: Foreign Trade and Balance of Payments, CMIE (various issues), Annual Report DIPP, Ministry of Commerce & Industry (various issues)

India’s leather and leather products exports are growing at the rate of 6.80% during 1991-92 to 2007-08. Table 4.2 provides the direction of trade with respect to leather and leather products from India. Germany, USA, UK, Italy and Hong Kong are the major destinations of India’s exports of leather and leather based products.

Though the volume of Leather export from India has been increasing during 1991-92 to 2007-08, the shares of Germany, USA and Australia have decreased whereas the shares of UK, Italy, Hong Kong, Spain, France, Netherlands and UAE have increased over time. Germany remains the major importer of leather and leather based products though its share in India’s total exports is decreasing. Impact on Exports due to Financial Turmoil: As per compilation of export data by ouncil of Leather Exports, based on Customs Monthly Data, export of leather & leather products for the period April-October 2008 was USD 2,177 million as compared to USD 1,914 million in the corresponding period of last year, registering a positive growth of 14% in USD. In Rupee terms, the total export from India increased to Rs. 94,852 million in the period from April October, 2008 as compared to Rs. 77,869 million in the period from April-October, 2007 growing at 22%. The above growth in exports of leather and footwear industry in both Rupee and USD in the first six months of FY 2008-09 shows that exports of the industry has not been impacted by financial turmoil in period from April-October, 2008. The impact of financial turmoil on the exports of leather and footwear industry is expected to be felt in the last two quarters of FY 2008-09.

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Table 4.2: Direction of India’s Leather Exports: 1991-92 to 2007-08

US$ Million

Country

1991-92 1995-96 2000-01 2003-

04 2005-06 2006-07 2007-08

Germany 280.92 400.62 306.02 322.18 357.20 397.94 486.91

Share % 21.92 22.83 15.71 14.88 13.24 13.58 18.77

UK 146.01 197.89 265.88 238.1 335.61 349.24 407.64

Share % 11.42 11.27 13.65 11 12.44 11.92 15.71

USA 177.54 295.05 342.83 245.24 310.40 302.79 304.30

Share % 13.88 16.81 17.60 11.33 11.51 10.33 11.72

Italy 124.38 221.05 238.87 277.2 308.61 395.03 475.60

Share % 9.73 12.59 12.26 12.80 11.44 13.48 18.33

Hong Kong 30.55 59.5 98.37 227.06 251.42 265.09 267.99

Share % 2.39 3.39 5.05 10.49 9.32 9.04 10.33

Spain 27.88 50.79 100.33 158.43 198.60 179.62 210.42

Share % 2.18 2.89 5.15 7.31 7.36 6.13 8.107.

France 61.7 88.54 88.67 107.65 140.73 168.18 194.27

Share % 4.82 5.04 4.55 4.97 5.22 5.74 7.49

Netherlands 21.81 38.42 55.52 57.01 81.94 97.68 133.10

Share % 1.70 2.18 2.85 2.63 3.04 3.33 5.13

UAE 5.99 12.23 17.96 34.73 48.48 53.62 64.87

Share % 0.46 0.69 0.92 1.65 1.80 1.83 2.50

Australia 25.04 40.42 27.95 31.56 42.80 37.82 49.52

Share % 1.95 2.30 1.43 1.45 1.59 1.29 1.91

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Other countries 376.38 350.33 405.21 465.35 -- -- --

Share % 29.44 19.96 20.80 21.49 -- -- --

World Total 1278.2 1754.84 1947.61 2164.51 2075.79 2247.01 2594.52


4.2 Export of Finished Leather

India’s export of finished leather has been growing at the annual rate of 6.42% from 1993-94 to 2007-08. Table 4.3 provides the direction of trade with respect to finished leather products from India. Hong Kong is one of the major export destinations of India’s finished leather products. Hong Kong cornered the largest share (42.25%) of India’s finished leather exports in 2007-08. There has been a rise in both absolute and relative shares of most of countries in exports of India’s finished leather except USA, Germany, France and Spain have registered a marginal fall in recent years. Also, volume of imports by Germany, France and USA has decreased over the years.

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Table 4.3: India’s exports of finished leather: Destination wise (US$ Million)

Country 1993-94 1997-98 2000-01 2003-04 2005-06 2006-07 2007-08

Hong Kong 45.93 47.75 90.43 199.5 242.91 257.65 256.21

Share % 17.01 16.12 23.66 35.87 38.18 37.47 42.25

Italy 56.73 64.46 85.7 85.68 86.19 115.44 133.53

Share % 21.01 21.76 22.42 15.40 13.55 16.79 22.02

China 3.53 3.18 8.41 21.61 34.86 37.20 48.25

Share % 1.30 1.07 2.20 3.88 5.48 5.41 7.95

Germany 26.58 29.37 20.96 22.78 34.56 24.20 32.73

Share % 9.84 9.84 5.48 4.09 5.43 3.52 5.39

Korea Republic 3 2.96 15.66 24.3 33.51 33.14 27.64

Share % 1.11 0.99 4.09 4.36 5.27 4.82 4.55

Spain 15.82 26.71 29.94 35.97 22.53 20.56 26.62

Share % 5.85 9.01 7.83 6.46 3.62 3.43 4.38

Vietnam -- 0.68 2.27 22.06 23.03 23.57 34.53

Share % -- 0.22 0.59 3.96 3.62 3.43 5.69

Malaysia 1.25 3.29 3.3 7.52 13.51 22.60 29.00

Share % 0.46 1.11 0.86 1.35 2.12 3.29 4.78

France 13.67 16.34 13.4 15.28 13.09 11.49 9.74

Share % 5.06 5.51 3.50 2.74 2.06 1.67 1.66

USA 16.96 10.9 12.43 7.87 12.24 9.68 8.22

Share % 6.28 3.68 3.25 1.41 1.92 1.41 1.36

Other countries 86.52 90.55 99.61 113.52 -- -- --

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4.3 Export of Leather Footwear

India’s export of leather footwear has been growing at the rate of 3.50% during 1991-92 to 2007-08. The leading importer of Indian leather footwear product is UK followed by Germany, USA, Italy and France (Table 4.4). The volume of imports by all the major countries has been increasing over time. The share of UK has been declining since 2000-01 showing a slight increase in recent years. Still it is a major importer of India’s leather footwear. The shares of USA has been declining in India’s leather footwear exports while Germany’s share has increased marginally. Italy, France, Spain, Netherlands, Belgium and UAE have increased their relative shares in India’s exports of leather footwear.

Table 4.4: India’s exports of leather footwear: Destination wise (US $ Million)

Share % 32.04 30.57 26.06 20.41 -- -- --

World Total 269.99 296.19 382.11 556.09 516.09 555.53 606.47

Country 1991-92 1995-96 2000-01 2003-04 2005-06 2006-07 2007-08

UK 54.18 56.31 100.82 124.62 164.15 188.04 215.92

Share % 11.59 16.51 26.39 22.51 20.78 20.52 21.93

Germany 80.45 67.56 48.89 110.81 140.85 174.47 203.43

Share % 17.21 19.81 12.79 20.02 17.44 19.04 20.66

USA 81.33 97.21 104.09 80.7 121.14 116.40 131.61

Share % 17.4 28.51 27.24 14.58 15.00 12.70 13.37

Italy 40.65 8.28 12.83 58.27 91.00 130.75 166.27

Share % 8.69 2.42 3.35 10.52 11.28 14.27 16.89

France 13.99 11.2 19.49 37.68 56.93 74.28 86.77

Share % 2.99 3.28 5.1 6.8 7.05 8.11 8.81

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4.4 Export of Leather Goods

India’s export of leather goods have been decreasing at the rate of 1.58% during 1991-92 to 2007-08 periods. Table 4.5 provides the direction of trade with respect to leather goods from India. Germany’s position as the major destination of India’s leather goods exports during the early 90’s has changed drastically. It was displaced by UK as the leading importer of India’s leather goods. The imports by Germany, Italy and France have increased recently from 2006-07 to2007-08 but finally have shown a decrease in absolute terms along their shares when compared with 1991-92. USA, Spain, Netherlands, Australia, UAE and Belgium have increased their imports from India in absolute as well as relative terms.

Spain 0.72 1 3.87 19.53 43.27 46.07 56.22

Share % 0.15 0.29 1.01 3.52 5.36 5.03 5.71

Netherlands 3.78 5.95 11.16 17.61 29.51 43.35 69.34

Share % 0.8 1.74 2.92 3.18 3.65 4.73 7.04

Belgium 3.64 1.76 5.04 8.13 20.08 20.94 29.30

Share % 0.77 0.51 1.31 1.46 2.49 2.28 2.98

UAE 2.92 5.49 8.62 11.66 19.99 22.07 25.73

Share % 0.62 1.61 2.25 2.1 2.47 2.41 2.61

Denmark 11.98 2.6 4.83 10.55 16.01 13.29 --

Share % 2.56 0.76 1.26 1.9 1.98 1.45 --

Other countries 173.62 83.56 62.35 73.86 -- -- --

Share % 37.15 24.51 16.32 13.34 -- -- --

World Total 567.19 440.87 481.93 653.35 789.97 916.43 984.59

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Table 4.5: India’s Exports of Leather Goods: Destination wise (US $ Million)

Country 1991-92 1995-96 2000-01 2003-04 2005-06 2006-07 2007-08

USA 96.21 78.37 107.89 98.87 116.00 124.30 121.43

Share % 11.86 21.58 24.45 18.32 17.57 18.01 19.35

UK 91.83 33.86 46.14 63.59 110.60 111.25 131.62

Share % 11.32 9.32 10.46 11.78 16.76 16.12 20.97

Germany 199.8 117.25 85.95 92.38 91.07 99.12 121.43

Share % 24.63 32.28 19.48 17.12 13.80 14.34 19.35

Spain 27.15 8.83 18.26 40.03 51.19 52.18 59.14

Share % 3.34 2.43 4.13 7.41 7.76 7.56 9.42

Italy 83.75 13.68 23.72 36.61 46.32 49.72 56.27

Share % 10.32 3.76 5.37 6.78 7.02 7.20 8.97

Netherlands 18.03 14.08 19.88 22.32 30.68 31.43 36.13

Share % 2.22 3.87 4.50 4.13 4.65 4.55 5.76

France 47.7 14.83 19.36 22.19 26.56 30.75 34.91

Share % 5.88 4.08 4.38 4.11 4.02 4.46 5.56

Australia 17.78 15.8 10.96 16.99 25.62 21.28 27.96

Share % 2.19 4.35 2.48 3.14 3.88 3.08 4.46

UAE 3.06 3.49 6.46 16.68 22.68 21.02 25.10

Share % 0.37 0.96 1.46 3.09 3.44 3.04 4.00

Belgium 6.13 5.91 6.97 9.24 10.25 11.51 13.54

Share % 0.75 1.62 1.58 1.71 1.55 1.67 2.16

Other countries 219.49 57.04 95.5 120.68 -- --

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Share % 27.06 15.70 21.65 22.36 -- --

World Total 810.93 363.14 441.09 539.58 660.07 690.19 627.53


4.5 Export of Leather Garments

India’s export of leather garments have been decreasing at a rate of 2.46% during 1995-96 to 2007-08. Table 4.6 provides the direction of trade with respect to leather garments from India. Germany is the leading importer of leather garments in 2008-09. Germany, Italy, USA, France, UK and Netherlands have all started importing less of Indian leather garments over the years. USA’s import from India increased once during 2000-01 otherwise it has declined over the period. Surprisingly, Spain and Canada has experienced drastic increase in exports from India in this sector.

Table 4.6: India’s exports of leather garments: Destination wise (US$ Million)

Country 1995-96 1998-99 2000-01 2003-04 2005-06 2006-07 2007-08

Spain 5.47 19.82 40.07 45.36 60.2 42.91 47.61

Share % 1.32 5.18 8.68 15.05 18.06 13.9 17.12

Germany 122.05 114.76 93.88 57.67 55.67 53 68.81

Share % 29.46 30.04 20.35 19.14 16.71 17.17 24.75

Italy 68.21 60.7 54.27 53.49 47.36 52.3 58.34

Share % 16.46 15.72 11.76 17.75 14.21 16.64 20.98

USA 73.53 47.02 102.58 46.86 45.11 36.72 27.75

Share % 17.75 12.31 22.24 15.55 13.54 11.89 9.98

France 32.67 28.12 24.81 16.8 22.78 23.34 27.11

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Share % 7.88 7.36 5.37 5.57 6.84 7.56 9.75

UK 41.21 38.81 54.31 23.18 21.41 22.39 23.10

Share % 9.94 10.16 11.77 7.69 6.42 7.25 8.31

Canada 2.8 3.29 8.34 5.93 10.06 8.53 8.94

Share % 0.67 0.86 1.8 1.96 3.02 2.76 3.22

Denmark 9.08 9.22 15.77 4.77 10.15 11.32

Share % 2.19 2.41 3.41 1.58 3.05 3.67

Netherlands 13.57 16.16 14.32 7.33 8.94 10.89 11.26

Share % 3.27 4.23 3.1 2.43 2.68 3.53 4.05

Belgium 2.12 2.99 2.19 4.04 6.06 5.14 5.11

Share % 0.51 0.78 0.47 1.34 1.82 1.67 1.84

Other countries 43.5 41.05 50.67 35.86 -- -- 47.61

Share % 10.5 10.74 10.98 11.9 -- -- 17.12

World Total 414.21 381.94 461.21 301.29 333.25 308.78 278.03


4.6 Export of Leather Footwear Components

India’s export of leather footwear components have been decreasing at a rate of 2.27% during 1995-96 to 2007-08. (Table 4.8) Italy, Germany and France are the major importers of Indian Leather Footwear components. Despite this decline India’s exports of leather footwear has increased to most of the countries except U.K. and Austria in both absolute as well as relative terms. Though shares of Spain, Portugal and Slovakia has declined in recent years but their shares have increased drastically from 1991-92 to 2007-08.

Table 4.7: India’s Exports of Leather Footwear Components: Destination Wise (US $ Million)

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Country 1995-96 1998-99 2000-01 2003-04 2005-06 2006-07 2007-08

Italy 54.11 58.06 61.04 41.44 34.84 44 56.24

Share % 22.23 24.08 25.59 25.67 19.09 20.7 33.39

Germany 55.71 53.05 48.7 27.66 24.11 34.17 40.56

Share % 22.89 22 20.42 17.13 13.21 16.08 24.08

UK 47.31 57.94 50.18 17.2 21.71 12.5 18.07

Share % 19.44 24.03 21.04 10.65 11.89 5.88 10.72

Spain 1.6 4.05 7.01 15.65 18.88 14.91 17.29

Share % 0.65 1.68 2.93 9.69 10.34 7.02 10.26

Portugal 7.42 11.39 17.88 12.9 16.35 15.07 --

Share % 3.04 4.72 7.49 7.99 8.96 7.09 --

France 4.38 9.93 8.44 10.96 14.58 21.17 26.53

Share % 1.8 4.11 3.53 6.79 7.98 9.96 15.75

Switzerland 3.88 6.67 4.95 4.42 7.33 7.99 8.2

Share % 1.59 2.76 2.07 2.73 4.01 3.76 4.86

Slovakia 0.05 0.17 3.89 3.83 7.13 14.93

--

Share % 0.02 0.07 1.63 2.37 3.91 7.03

--

Austria 5.2 2.09 2.86 5 5.28 3.13 1.52

Share % 2.13 0.86 1.99 3.09 2.89 1.14 0.90

Hungary -- -- 0.05 1.82 4.57 5.09

--

Share % -- -- 0.02 1.12 2.5 2.4

--

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Other countries

63.67 37.71 33.48 20.5 -- -- --

Share % 26.16 15.64 14.03 12.7 -- -- --

World Total 243.33 241.06 238.48 161.38 182.55 212.51 168.41


4.7 Export of Saddlery and Harness

India’s export of saddlery and harnesses has been increasing at a rate of 8.96% in the period of 1995-96 to 2007-08. Table 4.8 provides the direction of trade with respect to saddlery and harness from India. India’s volume of exports of saddlery and harness to all the ten major importing nations has been increasing in the period 1995-96 to 2007-08 but the shares of USA, Netherlands and Australia have been declining in India’s saddlery and harness exports. Despite this, there is a phenomenal increase in the growth rate of India’s exports of saddlery and harness indicates that India is capable of diversifying and exporting to more and more countries.

Table 4.8: India’s Exports of Saddlery and Harness: Destination Wise (US$ Million)

Country 1995-96 1998-99 2000-01 2003-04 2005-06 2006-07 2007-08

UK 1.68 2.73 8.4 5.93 14.91 12.49 16.24

Share % 7.85 8.23 19.65 11.24 24.24 19.04 19.26

USA 5.42 6.33 8.92 8.92 13.91 14.82 13.36

Share % 25.35 19.09 20.87 16.9 22.61 22.59 15.84

Germany 3.95 8.42 7.64 10.88 10.94 13.09 19.75

Share % 18.47 25.39 17.87 20.62 17.79 19.95 23.42

France 2.27 2.42 3.17 4.74 6.80 7.14 9.21

Share % 10.61 7.3 7.41 8.99 11.06 10.88 10.92

Sweden 0.83 1.76 1.63 2.27 3.74 4.70 6.37

Share % 3.88 5.3 3.81 4.3 6.08 7.16 7.55

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Netherlands 1.71 2.76 1.9 2.91 3.68 3.38 5.59

Share % 7.99 8.32 4.44 5.51 5.98 5.15 6.63

Italy 0.54 0.78 1.32 1.73 2.80 2.83 4.92

Share % 2.52 2.35 3.08 3.27 4.55 4.31 5.83

Spain 0.51 0.65 1.18 1.91 2.53 3.00 3.54

Share % 2.38 1.96 2.76 3.62 4.11 4.57 4.20

Australia 1.1 1.47 2 1.97 2.20 4.16 5.35

Share % 5.14 4.43 4.68 3.73 3.58 6.34 6.34

Other countries

3.37 5.81 6.56 11.48 -- -- 16.24

Share % 15.76 17.52 15.35 21.76 -- -- 19.26

World Total 21.38 33.15 42.73 52.75 61.51 65.61 84.33


4.8 Major Leather Products Exporting Countries in the World

Table 4.9 gives the major leather and leather products exporting countries and their share in world trade. China corners the largest share among all the nations in the export of leather and leather product. Its share has been rising steadily from 17.77% in 2000 to 32.11% in 2006. Though Italy’s share has been steadily declining it still remains a major exporter of leather and leather products next only to China. Brazil’s exports have been declining steeply from 2000 to 2006. Shares of countries like Korea Republic, Indonesia and Taiwan have been steadily declining.

Table 4.9: Export Share of Major Leather Producing Countries in the World

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Country Export Share

As a percentage (%) of World Export 2000 2004 2006

China 17.77 21.99 32.11

Italy 15.89 15.81 10.74

Brazil 3.14 3.39 0.34

India 2.54 2.44 3.14

Romania 1.09

1.71 0.47

Korea Republic 3.19 1.63 0.29

Indonesia 2.49 1.53 0.41

Taiwan 1.97 1.26 0.32

Rest of the world 51.92 50.24 52.13

World Total 100.00 100.00 100.00

Total Volume (US$ Million) 77331.26 97606.18 --

Source: World Statistics, ITC, Geneva, India’s exports, DGCI & S

4.9 World Leather Exports Growth

The volume of world trade in leather and leather products has been steadily increasing. The growth rate during the 2004-06 was 55.48% compared to 5.99% growth in the pre 2000-04 time period (Table 4.10). This shows that there was impressive growth in world trade of leather and leather manufactures in the post 2000 period.

Indian export’s growth rate has shown a marginal increase in the post 2004 period and its growth rate lags behind that of China, which registers an impressive growth rate of 11.79% in the pre 2004 period and 28.02% in the post

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2004 period. Romania is another country, which registers an impressive growth rate of 18.78% and 21.63% during the time period 2000-04 and 2004-06 respectively. Italy is another nation which has shown an impressive growth rate of 16.80% during 2004-06 as compared to 5.86% during 2000-04. But India is better off than some nations like Brazil and Taiwan, which have been suffering from negative growth rates for both the post 2004 period.

Table 4.10: Growth in World Trade of Leather and Leather Products

CAGR= Cumulative Average Growth Rates

Source: World Statistics, ITC, Geneva, India’s exports, DGCI & S

US $ Million CAGR % Countries

2000 2004 2006 2000-04 2004-06

India 1963.55 2379.44 2621.00 4.91 4.97

China 13741.54 21464.30 35182.24 11.79 28.02

Italy 12286.64 15432.76 21056.75 5.86 16.80

Brazil 2427.39 3307.49 2382.79 8.04 -15.12

Romania 839.64 1671.43 2473.06 18.78 21.63

Korea Republic 2465.80 1587.48 2040.80 -10.42 13.38

Indonesia 1923.01 1490.06 1876.37 -6.17 12.21

Taiwan 1526.23 1227.81 1210.46 -5.29 -0.70

World trade 77331.26 97606.18 235956.92 5.99 55.48

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CHAPTER V

GLOBALIZATION AND PROSPECTS FOR LEATHER INDUSTRY

5.1 Introduction

The post liberalization era has opened up a plethora of opportunities for the Indian leather industry. Along with China and Vietnam, India stands to gain a bigger share of global market. Since global players are looking at new sourcing options for their trade in leather products. Leading brands from the US and Europe, are planning to source leather and leather products from India The Hindu Business Line, February 04, 2005). Global players who participated at the India International Leather Fair, 2005, emphasized on India as sourcing destination for their trade in leather products.

The domestic producers have also realized the opportunities ahead. In fact, almost every player in the organized sector is on an expansion spree, and many are doubling capacities.

Currently India has a share of nearly 2.3 per cent i.e. 2 billion in the global trade of leather and leather products of nearly US $ 88 billion. Moreover, India has significant cost advantages in terms of labour and raw materials in comparison to the other developed countries which are evident from the interest shown by the global players as mentioned above. Taking the current meager share in global trade and the cost advantages into account it may be said that Indian leather industry has a significant potential for higher share in global trade. In addition to the global market, Indian leather industry is yet to capture the existing untapped potential in the domestic market. India has a large and growing consumer class (annual income > US$ 449), estimated to constitute nearly 90 million households by 2006 - 07, having a Compound Annual Growth Rate (CAGR) around 12%. Global players in the leather business, big or small are today focusing increasingly on India's domestic market which is already, witnessing numerous developments. Not only quantity-wise but also quality wise there has been significant development in the Indian leather sector: The number of people within the country who are today ready to buy high priced shoes, in the range of US $ 30 to US $ 45 a pair, has gone up significantly. Besides, the retail revolution is also boosting availability of goods, and the market for branded footwear (www.tdctrade.com (2006) International Market News, May). Hence, looking at the global trade scenario and domestic demand it may be said that the Indian leather industry has the potential to grow leaps and bounds in the future years to come. And hence it has an enormous potential for offering huge employment opportunity particularly in rural and semi-urban areas. It is estimated that the potential for employment across all skills to be

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in the tune of semi-skilled and unskilled labourers - 92%; technical supervisory, shop floor - 7%; entrepreneurs, senior managers and technologists - 1% (CII-2006). However, the extent to which the growth potentials of Indian leather industry can be realized depends its competitive strength vis-a –vis its competitors. Otherwise, the absence of required competitive strength in the era of globalization will turn a producing economy into a consuming one only. 5.2 Competitive Strengths of Indian Leather Industry

The perception about growth potential of Indian leather industry draws its inspiration from various sources constituting the strength of the industry. Some of the important ones could be the followings.

(a) Raw Material Source: Fortunately, the industry has access to one of the cheapest and abundant source of raw material. The livestock is the raw material for the leather industries. Cattle, buffaloes, goat and sheep are the four live stock species which provide the basic source of raw materials for the leather industry. As per the latest live stock census i.e. 17th live stocks census of India-2003. India has 194 million cattle, 70 million buffaloes, 95 million goats and 48 million sheep population. Also, India ranks first among major livestock holding countries in the world.

(b) In fact, India has the capacity to fulfill 10% of the global leather requirement1. Moreover, not only the country has access to abundant supply of raw materials but also the available raw material is diverse in variety. The annual availability of 218 million pieces of hides and skins is the main strength of the industry. Quality wise, some of the goat/calf/sheep skins available in India are regarded as specialty products commanding a good market. Thus, the rich endowment of raw material for the production of leather puts the country on a competitive footing.

(c) Availability of Labour: Along with the rich endowment of raw materials the industry has also access to large supply of labour. Along with the large supply of labour, the industry has access to abundant of traditional skills in tanning, finishing and manufacturing downstream products. Thus, the large supply of skilled labour which has resulted in relatively low wage rate certainly puts the industry in a cost advantageous position vis-à-vis its competitors.

(d) R & D facilities: Over the years through government support the industry has been able to develop its R & D facilities considerably. Though there is yet much to be

1 Shobha Mathur, “Moving up the value chain,” Industrial Economist, February 15, 2005

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done in order to meet the challenges of globalization, the industry has established a sound base for the same.

(e) Apart from the above discussion on the competitive strengths of Indian leather industry it is essential to have a brief look at the estimated picture of India’s export competitiveness in leather and leather products.

5.3 Indian Leather Industry: Constraints

Despite the fact that Indian leather industry has comparative advantage owing to factors like abundance of raw material, cheap source of labour, traditional skills, R&D facilities etc., there is no guarantee that it can achieve its growth potentials since it has been facing several hurdles. Some of the hurdles could be listed as follows.

Firstly, on the quality front, there continues to be acute shortage of good quality finished leather. As a result the industry is dependent on import from china and other countries. Lack of adequate product quality adversely egested India exports complement appreciation of rupee.

Secondly, on the technology front, most of the existing tanneries use outdated technology which inhibits them from producing good quality leather in spite of access to quality raw materials such as hides and skins. The tanneries require high doses of capital investment in order to improve the existing technology so that Quality raw material could be produced and supplied to leather manufacturing units.

Thirdly, in recent years the leather industry across the globe has been subjected to stringent pollution control norms due to growing environmental concerns. Adhering to pollution control norms helps them to access better market and lower tax regimes. But unfortunately, the pollution control measures adopted for a large segment of Indian leather sector has been found to be in adequate which ultimately erode their competitive advantage. In fact, in India in recent years a number of tanneries have been closed on environmental considerations. Since the Leather and leather products sector especially the tanneries are facing a lot of problems in terms of Environmental norms, there is an urgent need for modernizing the existing ones and also setting up new common effluent treatment plants at various leather industry clusters as per international standards.

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The Tannery Modernization Scheme of the Government of India provides investment grants for enabling the small and medium enterprises to readjust quickly to the changed circumstances of WTO regime. Tanneries in China and other major competing countries have invested significant amounts of funds in large tanneries.

Suitable measures to attract large FDIs and JVs in leather sector from potential investors from abroad would help in meeting the additional capital requirement of the sector.

Fourthly, from the financial point of view, since the industry has been dominated by small and tiny producers, the availability of finance and cost of capital turns out to be a major constraint.

Fifthly, from a planning perspective, at the government level there is no clear cut road map for the Indian leather industry to achieve its potentials. Moreover, not only there exist lacuna at the planning and policy level but also the sector suffers from weak statistical reporting system. The Council for Leather Exports (CLE) markets the products abroad and maintains the export figures and other associated functions for exports. But the domestic sales, production and statistics of the unorganized sector producing leather and leather products are not available adequately. This hinders in taking a holistic view of the sector. As a result, the assessment of future potential based on forecasting tends to be far from reality. Finally, on the global competitiveness front Indian leather sector is much behind that of its competitors. In fact, all the aforesaid obstacles directly or indirectly but adversely affect the productivity and competitiveness of Indian leather industries in comparisons to its competitors such as China, Indonesia, Thailand, Vietnam and East European countries. As a result India has a very low share in the aggregate global trade in leather in comparison to its major competitor i.e. China. For example, India has a less than 3% share in the global trade in leather compared to China’s 20%. As regards to competition emanating from these countries, immediate requirement is to make available quality raw material to Indian leather Manufacturing Units. Apart, from that the present level of technology adopted by Tanneries and manufacturing units need urgent upgradation.

In fact, not only the leather industry in general, but also the Indian footwear component industry which is the pride of India in terms of its contribution to total leather exports is also facing stiff competition from China in a number of shoe components - cellulose insole fabrics, coated, impregnated fabrics and interlinings, where the price of the imported materials is between 40% and 50% lower than the indigenously produced materials. Components worth US $ 35 million were imported into the country last year, and Indian Footwear Component Manufacturer Association (IFCOMA) expects a 100% increase in imports in the component area from China in the current fiscal.

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Along with the lack of competitiveness the size of the Indian footwear segment appears to be too small in comparison to that of China. This is evident from the fact that India's share of the global footwear imports is 1.5%, as against China's share of 14%.

Indian Shoe Federation, a body representing footwear export views that "China has a very big footwear industry, and there is no way we can compete with China. In the low cost products, orders cannot come to India, not just because of the price, but also because we do not have factories that can undertake such huge orders."

This is precisely because of the fact that India's footwear manufacturing, even today is concentrated in the unorganized and small scale sector. In fact, about 85% of footwear production in India is still in tiny, cottage and small scale sector (Mani Almal, President – IFCOMA, http://www.ifcoma.org/about/message.asp). However, in the footwear business if at all India has some competitive advantages in the global scenario; it is in the mid price segments. But here also, we are facing competition from Vietnam.

The major reason for the low scale of operation in the leather industry in general and in the footwear segment in particular could be lack of investments in the sector. Over the last 20 years china has attracted more than 10 times of investment that India has attracted. This is precisely because of the fact that for a long time the sector almost in its entirety was in the SSI list. Only recently, i.e. since 2001 it has been freed from the SSI clutch. And in the absence of appropriate regulatory environment it takes more than the required time for capacities to be enhanced. Thus, the above discussion suggests that the leather industry in India is constrained by several obstacles in its progress towards achievement of potential growth in the future years. But, certainly, the obstacles do not imply that the industry cannot achieve its potential growth because along with its obstacles it has also a great deal of positive strengths as discussed earlier. Hence, the success on the growth front will definitely depend on the relative strengths of the positive and negative forces faced by the industry. In fact, a SWOT analysis gives a better picture in this regard. 5.4 SWOT Analysis

An analysis of Strength, Weakness, Opportunity and Threats helps to assess the realistic potential of an industry. Though a discussion on all these aspects of Indian leather industry has already been done above, the following table summaries the above discussion in the form of SWOT analysis.

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SWOT Analysis of the Indian leather industry

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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

STRENGTHS

• High Growth • Ready availability of highly

skilled and cheap manpower • Large raw material base • Policy initiatives taken by the

Government • Capability to assimilate new

technologies and handle large projects

• Continuous emphasis on product development and design upgradation

WEAKNESSES

• Lack of warehousing support from the government

• International price fluctuation • Huge labour force resulting in

high labour charges • Lack of technological inputs • Lack of strong presence in the

global fashion market • Unawareness of international

standards by many players

THREATS

• Major part of the industry is unorganized

• Limited scope for mobilizing funds through private placements and public issues (many businesses are family-owned)

• Difficulty in obtaining bank loans resulting in high cost of private borrowing

• Stricter international standards

• High competition from East European countries and other Asian countries

• Shortage of communication facilities and skills

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Comparative picture of strength, weakness, opportunity and threat definitely suggests that the realization of potential growth for Indian leather industry though seems difficult is not impossible. The industry certainly can achieve its potential provided efforts are made at the planning and policy level to ease its constraints. To put it in other words, Indian leather industry can meet the challenges of globalization if appropriate steps are taken by the state in a timely manner.

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CHAPTER VI

FIELD SURVEY FINDINGS 6.1 Profile of Leather Manufacturing Units National Productivity Council has carried out a nationwide survey across various Leather Manufacturing units to major constraints that are hindering the growth of leather manufacturing units in India in terms of productivity and export competitiveness. The field survey has been carried out across ten states in India with a view to provide sector specific policy recommendations for enhancing productivity and export competitiveness of the leather and leather products sector in the country.

The survey of the manufacturing units has been carried out with a structured questionnaire (Annexure 1). The field survey tries to capture firm level information such as turnover, employment, domestic and foreign trade, product description, cost related information, factors affecting productivity, factors responsible for competitiveness and specific suggestions from each of the units.

The field survey covers total 62 leather and leather products manufacturing units spread across 10 states in India (Annexure 2).. Detailed state wise distribution of the responding manufacturing units are given in table 6.1.

Table 6.1: Distribution of Leather & Leather Products Manufacturing Units NPC Field Survey

Sl. No. States Leather Units (Nos.) Percent

1 A.P. 2 3.2

2 Delhi/NCR 11 17.7

3 H.P. 7 11.3

4 Maharashtra 1 1.6

5 Karnataka 5 8.1

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6 Rajasthan 5 8.1

7 Punjab 3 4.8

8 T.N. 11 17.7

9 U.P. 15 24.2

10 W.B. 2 3.2

Total 62 100

Source: NPC Field Survey, March-April 2008

Majority of the manufacturing units are based at the Industry Centers (50%) while the remaining 50% units are based at other places. The establishment year for the surveyed units is reported in the range of 1949 to 2008. As far as the nature of business is concerned, 89% respondents belong to manufacturing category while 8% reported that they belong to trading company. A negligible proportion belongs to multinational and other categories. In terms of the nature of the company, 65% belong to small units while 20% belong to registered manufacturing categories. Among the sample units 58% belong to Small, 33% medium and 8% large category of manufacturing. About 45% units have obtained quality accreditations. Nearly 63% responding manufacturing units opined that the quality accreditations boosted their business.

6.2 Turnover and profitability of the Units

From table 6.2 it is observed that the average annual turnover of the manufacturing units show wide fluctuations across the states. It may be due to the fact that from each state the number of units surveyed is not significant

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enough. For example, the skewed nature of sample distribution across the states leads to this huge variation in terms of average annual turnover across states. However, at the all India level, the number of surveyed units is sufficient enough to eliminate the problem of small sample.

It may be noted that the average annual turnover of the firms at all India level has shown an increasing trend except for the year 2005-2006.

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Table 6.2: Average Annual Turnover of the 62 Leather Manufacturing Units State wise (Rs. Lakhs)

States 2003-04 2004-05 2005-06 2006-07 2007-08

A.P. -- 12 20 26 80

Delhi/NCR 917 690 676 803 940

H.P. 6400 6500 2326 2107 2143

Maharashtra 10 17 22 29 40

Karnataka 1022 1121 1222 1223 1423

Rajasthan 405 506 606 740 633

Punjab 177 177 177 227 587

T.N. 4296 4638 3664 3610 3933

U.P. 2697 3801 3402 4957 4975

W.B. 1251 1525 1453 1625 1788

All India 1881 1877 1676 1904 2111

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6.3 Profitability of the Manufacturing Units

The Leather-manufacturing units have been asked about the trends in average profitability (profit after tax) during the year 1991-2000. Among the responding units approximately 75 percent manufacturing units reported that average profitability increased during this period. Majority of such units were small and medium sized units. About 15 percent units reported that the profitability decreased. As regards to average profitability after 2000, firms which experienced an increase in their profitability increased marginally to 76% again most of the firms were small and medium sized units [table 6.3 (a & b)]. This indicated that the profitability of the units reveal more or less same trends during the two periods.

Table 6.3.a: Average Profitability of the Units during 1991-2000 (Number of Responding Manufacturing Units)

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Response Increased Decreased No change Total

Small 14 3 1 18

Medium 10 2 12

Large 1 2 -- 3

Others 25 5 3 33

Total 14 3 1 18

Table 6.3.b: Average Profitability of the Units after 2000 (Number of Responding Manufacturing Units)

Response Increased Decreased No change Total

Small 22 6 28 22

Medium 12 2 14 12

Large 2 2 4 2

Others -- 1 1 --

Total 36 11 47 36

The manufacturing units were further asked about the extent of increase in profitability after 2000. About 47.5 percent respondents reported that the increase was in the range of 0-5% while 27.5 percent reported that the increase was in the range of 10-25% (table 6.4).

Table 6.4: Extent of increase in Profitability after 2000

Range (%) Respondents (%)

0-5 47.50

5-10 22.50

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10-25 27.50

25- above 2.50

Total 100.00

The leather manufacturing units were also asked about the decrease in profitability. About 47 percent responding manufacturing units reported that the decrease was in the range of 0-5% per annum after 2000 (table 6.5).

Table 6.5: Extent of decrease in Profitability after 2000


0-5 47.06

5-10 5.88

10-25 41.18

25& above 5.88

Total 100

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6.4 FDI and ICT Usage

Only a few (12/62) leather manufacturing units reported any type of Foreign Direct Investment (FDI) in their enterprises. Most of them reported that the investment is less than 10 percent. All the manufacturing units responded that there is no foreign ownership of their company and they didn’t acquire any firm in foreign countries. This gives a clear indication that government should make crucial efforts to promote foreign ownership and FDI in leather and leather product industry.

The manufacturing units were asked about the usage of Information Communication Technology (ICT) in the firm’s operation. It was reported that they use ICT at varying degrees in their operations (table 6.6).

Table 6.6: Extent of ICT usage in the Unit


0 -5 7.14

5-10 11.90

50-Above 4.76

NA 76.19

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Total 100

As far as research is concerned, only 15 percent units reported that they are engaged in research and development activities. However, only 8 percent units received any product patent during the last five years. In the case of product innovation, many manufacturing units 74 percent units reported affirmatively.

6.5 Employment Profile

It is seen from table 6.7 that the average employment across the manufacturing units has steadily increased from 257 employees during 2003-04 to 315 employees during 2007-08. Except during 2005-06 we notice consistent increase in employment across the leather manufacturing units. The decline in employment reported during 2005-06 indicates that the sector is facing problems due to increasing competition.

Table 6.7: Average Employment per Unit

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Years Employees per Unit

(Average Number)

2003-04 257

2004-05 276

2005-06 260

2006-07 286

2007-08 315

Average Employment per Unit

37 Manufacturing units out of a total 62 reported that the employment has grown during the last five years. More than 32 percent manufacturing units reported that the range of increase of employment during the last five years is reported in the range of 10-25 percent. About 27 percent manufacturing units reported the increase in the employment in the range of 5-10 percent (table 6.8).

Table 6.8: Range of increase in employment

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29% responding manufacturing units reported that the casualization of labour increased during the last five years. The respondents were further asked about the extent of increase in wages/salary after 2000. About 26 percent respondents reported that the salary has increased.

6.6 Trade Related Information

It is seen from table 6.9 that 75% responding manufacturing units are engaged in exports. The remaining 25% units did not engage in any export activity. Also, when only large sized firms are considered most of them export.

Table 6.9: Units engaged in exports (Number of Manufacturing firms)

Respondents Yes No Total

Small 17 (65.38) 9 (34.62) 26 (100)

Medium 14 (87.50) 2 (12.50) 16 (100)

Large 4 (100) -- 4 (100)

Others -- 1 (100) 1 (100)

Total 35 (74.47) 12 (25.53) 47 (100)

Note: Figure in bracket are percentage

Increase Range (%) Manufacturing Units Response (%)

0-5 24.32

5-10 27.02

10-25 32.43

25 & Above 16.21

Total 100

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As it is evident from secondary data that leather industry is dominated by unorganized and small sized sector. This survey data also gives the same result. 64% firms export more than 50% of their total sales and most of these firms are small sized (Table 6.10).

Table 6.10: Percentage of exports to total sales

Respondents 1-10% 10-25% 25-50% 50-75% Above75% Total

Small 3 (12.50) 3(12.50) 3(12.50) 1 (4.16) 14 (58.33) 24 (100)

Medium 1 (11.11) 8 (88.88) 9 (100)

Large 2 (66.66) 1 (33.33) -- -- -- 3 (100)

Others -- -- -- -- 1 (100) 1 (100)

Total 5 (13.51) 4 (10.81) 4 (10.81) 1(2.70) 23 (62.16) 37 (100)


As regards to export growth during the last five years, 82.9% units reported an increase while only 8.9 percent reported a decline (Table 6.11).

Table 6.11: Growth in export during the last five years

Growth in Export Manufacturing Units Response (%)

Increased 82.9

Decreased 8.6

No Change 8.6

Total 100.0

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About 30% units reported that the increase in exports is in the range of 1-10% while 26.7% units reported above 50% export growth during the last five years (Table 6.13).

Table 6.12: Range of increase in exports during last five years

Range (%) Manufacturing Units Responses (%)

1-10 30.0

10-25 26.7

25-50 16.7

50 & Above 26.7

Total 100.0

As far as import by leather manufacturing units are concerned, more than 50 percent leather manufacturing units import raw materials to meet production requirements (Table 6.13). Not surprisingly, it was only small and medium sized firms which were indulged in import of raw material. No large sized firm imported raw material for production.

Table 6.13: Import by leather manufacturing units

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Small 12 (52.17) 11 (47.82) 23 (100)

Medium 7 (77.78) 2 (22.22) 9 (100)

Large -- 2 (100) 2 (100)

Others -- 1 (100) 1 (100)

Total 19 (54.29) 16 (45.72) 35 (100)


Nearly 36% of units Import more than 75% raw materials for the units production requirements (Table 6.14).

Table 6.14: Level of import of raw materials for units’ Production requirement

Respondents 1-10% 10-25% 25-50% 50-75% Above75% Total

Small 3 (33.33) -- -- -- 6 (66.66) 9 (100)

Medium 4 (33.33) 4 (33.33) 2 (16.66) -- 2 (16.66) 12 (100)

Large 1 (25.00) -- -- 2 (50.00)

1 (25.00) 4 (100)

Total 8 (32.00) 4 (16.00) 2 (8.00) 2 (8.00) 9 (36.00) 25 (100)


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However level of import of finished products have been reported to be very less than at 10% by about 77% of manufacturing units (Table 6.15). Some of the factors that hinder the quantity of imports are import licenses and export taxes.

Table 6.15: Level of import of finished product

Range (%) Manufacturing Units Responses (%)

1-10 76.9

10-25 15.4

25-50 7.7

Total 100.0

From a critical analysis of export and imports it can be concluded that a larger proportion of external trade in leather and leather product industry consists of exports.

It is due to domination of unorganized sector in this industry that it is largely small and medium sized units which are indulged in trade.

60% small and medium sized firms have captured a domestic market share of 1-5% only. Also, a larger proportion of industry consists of small and medium sized units. This implies that larger the number of firms in an industry smaller will be the market share of each firm.

(table 6.16).

Table 6.16: Domestic market share of the manufacturing unit

Respondents 1-5% 5-10% 10-25% 25%&Above Total

Small 14 (66.67) 2 (9.52) 2 (9.52) 3 (14.29) 21 (100)

Medium 6 (50.00) 2 (16.67) 2 (16.67) 2 (16.67) 12 (100)

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Large 2 (50.00) -- 1 (25.00) 1 (25.00) 4 (100)

Others 1 (100.00) -- -- -- 1 (100)

Total 23 (60.53) 4 (10.53) 5 (13.16) 6 (15.78) 38 (100)


More than 50% of the firms, as survey data shows, have domestic sales of more than 50% to their total sales and major contributors are again small and medium sized units. (Table 6.17).

Table 6.17: Share of domestic sales to total sales

Respondents

1-10% 10-25% 25-50% 50-75% 75%Above

Total

Small 6 (25.00) 3 (12.50) 1(4.17) 3 (12.50) 11 (45.83) 24 (100)

Medium 5 (35.42) 1(7.15) 2 (14.29) 2 (14.28) 4 (28.57) 14 (100)

Large 2 (50.00) -- -- 1 (25.00) 1 (25.00) 4 (100)

Others -- -- -- -- 1 (100.00) 1 (100)

Total 13 (30.23) 4 (9.98) 3 (6.98) 6 (13.96) 17 (39.54) 43 (100)


6.7 Cost Competitiveness

87% of the surveyed firms have experience an increase in their cost competitiveness. Simultaneously, 70% of such firms have experienced an increase in their labor productivity as well. This implies that increase in cost competitiveness is significantly due to increase in labor productivity. It can also be concluded that small and medium size units are labor intensive. (Table 6.18).

Table 6.18: Cost competitiveness of the firm during the last five years due to labor productivity

Labor Productivity

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Respondents increased decreased No change Total

Increased 29 (69.05) 4 (9.53) 9 (21.42) 42 (100)

Decreased 2 (50.00) 1 (25.00) 1 (25.00) 4 (100)

No change 1 (50.00) -- 1 (50.00) 2 (100)

Cost

Competitiveness

Total 32 (66.67) 5 (10.42) 11(22.92) 48 (100)


88% of surveyed firms say that their cost competitiveness has increased and 75% of such firms have also experienced an increase in total productivity.

Thus, its not only the labor productivity that has increased rather overall productivity of leather productivity has increased. (Table 6.19)

Table 6.19: Cost Competitiveness of firms due to Total Factor Productivity

Total Factor Productivity

Respondents Increased Decreased No change

Total

Increased 30 4 6 40

Cost

Competitiveness

Decreased 2 2

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No change 1 2 3

Total 33 4 8 45

Manufacturing units were further asked about the contribution of various components of cost in total cost of production. It has been reported by 45% units that the wages and salaries constitute 10-25% total cost. The responses received from the units with respect to various cost components have been summarized in table 6.20. Majority respondents reported an increase in various cost components in the range of 1-10% for most components of cost except wages and salaries, raw materials and taxes.

Table 6.20: Ratio of various Cost Components in Total Cost of Production–Respondent (%)

Cost Range

(%)

Wages & Salaries

Other Labour Related

Cost

Raw

Materials

Fuel Cost Interest Securit

y Taxes Others

1-10 39.2 61.2 5.8 59.2 67.3 85.0 41.2 57.1

10-25 45.1 28.6 21.2 24.5 28.6 10.0 45.1 38.1

25-50 11.8 8.2 34.6 12.2 4.1 5.0 13.7 4.8

50& Above

3.9 2.0 36.5 4.1 -- -- -- --

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

6.8 Price Factors

Leather Manufacturing units have been interviewed about the price competitiveness of their units during the last five years. More than 86% units reported that the price competitiveness increased during the last five years. Only 8% units reported that the price competitiveness decreased while 6% reported that there is no change.

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The increase of price competitiveness have been reported in the range of 1-10% by 58% units while 37% reported that the price increase was in the range of 10-25% range. The remaining 5 percent units reported an increase in the range of 25-50%.

Only 30% manufacturing units reported that there was an increase in the price of the products due to the increase in the import of raw materials during the last five years.

All large sized firms surveyed have experienced an increase in price competitiveness along with 86% of small and medium sized firms. Which implies that price competitiveness of entire industry has increased?

6.9 Factors affecting Productivity

Most of the leather-manufacturing units interviewed (65%) reported an increase in labour productivity during the last five years (table 6.21). Only 12% units reported a decrease in labour productivity while another 24% reported no change.

Table 6.21: Labour productivity during last five years

Labour Productivity Respondents (%)

Increased 64.7

Decreased 11.8

No Change 23.5

Total 100.0

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As far as increase in labour productivity is concerned, about 49% units reported that the labour productivity of the units increased in the range of 1-5%.

In the case of total factor productivity (output produced relative to all inputs used), nearly 71% manufacturing units reported an increase while 13% units reported decrease and another 16% units reported no change in total factor productivity during the last five years.

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6.10 Factors responsible for Competitiveness of the Units

Manufacturing units were interviewed about the competitiveness of the unit during the last five years, overwhelming 79% units reported that the competitiveness of the units increased while the remaining 21% units were of the view that the competitiveness either decreased or remained stagnant. As regards to the availability of raw materials, more than 67% units reported that it is available within the country; another 17% reported that the raw material is imported. Only 13.5% units reported that the raw materials are available within the region.

In the case of the availability of quality human resources during the last five years, the units have given mixed responses as 53% units reported that there is an increase while 40% units were of the opinion that it decreased during the last five years another 7% units reported no change.

As regards to the quality of the present educational system for catering to the requirements of the leather industry, 57% units are satisfied whereas 43% units are not. Nearly 70% units reported that the labour relations in the states are productive. Only 30% units are not satisfied with labour relations in the states.

About 61% manufacturing units are not satisfied with the quality of infrastructure (both social and physical) in the state.

As far as Government interface with business/private sector is concerned, about 69% respondents are not satisfied while 31% units reported that they are satisfied. The units are further interviewed whether state government is friendly towards investors while 72% reported positively the remaining 28% reported negatively. Similarly, the extent of computerization of government records 73% units reported that they are satisfied while 27% were not satisfied. In the case of corruption level in the government, overwhelming 64% units reported that it increased during the last five years. Only 10% units reported that it decreased while 26% reported of no change in corruption levels. As regards to transparency in government 55% units are satisfied while 45% units are not satisfied with it.

6.11 Research and development expenditure and Product innovation

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In last 5 years only 21% of the firms have incurred R&D expenditure. The field survey gives us a picture that most of the small sized firm doesn’t spend on research and development but almost all large sized firms are indulged in research and development activities (table 6.22).

Table 6.22: Research and Development Expenditure by Manufacturing firms


Small 2 (6.89) 27 (93.10) 29 (100)

Medium 5 (35.72) 9 (64.28) 14 (100)

Large 3 (100.00) -- 3 (100)

Others -- 1 (100) 1 (100)

Total 10 (21.28) 37 (78.73) 47 (100)


This field survey draws a picture that only 21 %( approx) firms spend on R&D but all of them haven’t introduced any new product in last five years. Only 60% of such firms have done it. As previous analysis shows that a small proportion of small sized firms are involved in R&D we can conclude that most of the time these are the large sized firms which provide new products to the market and variety to consumers (table 6.23).

Table 6.23: R&D and Product Innovation


Yes 6 (60.00) 4 (40.00) 10 (100)

No 4 (11.74) 30 (88.23) 34 (100)

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Total 10 (22.73) 34 (77.27) 44 (100)


6.12 Factors affecting competitiveness of the Units

Based on the field investigations and discussion with various stake holders, the following factors have been identified which affect the Competitiveness of Leather and Leather products manufacturing in India.

• Fluctuations in foreign exchange or rupee appreciation against dollar. • Global competition intensified • Increase in raw material price. • Various Government trades and export policies are not favorable for the growth the

sector. • Quality of product needs improvement. • Increasing labour cost. • Fuel cost increase. • Competitions from china. • Dominance of small manufacturers. • Interest rates are very high. • Shortage of skilled manpower. • Shortage of power supply. • High Power & Water charges & Improper and irregular supply.

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• Procedural delays in export clearance. • High Import and excise duty cost. • Labour problems in organized sector. • Lack of market intelligence and market planning. • Stringent Pollution Norms. • Need to open outlets and showroom all over the country.

6.13 Measures taken by Manufacturing Units for boosting domestic & export competitiveness during last five years

The leather manufacturing units have adopted a number of measures during the last five years to boost domestic and export competitiveness.

• Better Quality web site for promoting marketing of products. • Quality control measures adopted to get the product accredited through quality and

concern systems like ISO9001 and ISO14001. • Increased marketing & advertisement • Opening more distribution outlet in rural area to capture the domestic market • Financial incentives • Leather industry is growing but still latest technology, trained workers and quality is

lacking • Competition is increasing and in future it is going to intensify • Facilities like tax exemption on small scale sector may be given • Measures to tackle frequent labour unrest/strikes except for grievances/demands. • Quality manpower, knowledge management and latest technology • Quality labour from ITI recruited. • Raw material cost is very high, • Requirement of Good infrastructure for stable production • Protection from Chinese dumping required • Establishing more distribution outlet in rural area to capture the domestic market • Measures taken to tackle frequent labour unrest/strikes except for grievances/demands. • Quality manpower, knowledge management and latest technology introduced in the

production process • Better designs and tools made available • Productivity measures have been improved to become competitive

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CHAPTER VII

RECOMMENDATIONS

Since the study was undertaken with limited budget the limited resources available in terms of finance, the unit level data coverage was undertaken with a limited scope and coverage. However, efforts have been made to minimize such constraints through analyzing various data sources available to arrive at broad recommendations for the development of the sector. The recommendation have been formulated which are implementable in nature.

Quality of Product

• There is an urgent need to improve product quality and efforts should be made to promote quality systems among the leather and leather products manufacturers to ensure sustained product quality. Towards this emphasis should be placed on strengthening improved design, development and prototyping. Quality Council of India and BIS can provide sufficient support for identifying and establishing quality standards for the leather industry.

Branding Requirements

• Currently large numbers of SME units are producing quality leather products but are unable to realize the advantage due to lack of branding. Goal through its developmental agencies should promote branding of quality products produced by large number of small manufactures. An incentive scheme in terms of product branding may be introduced for an initial period of five years. Central Leather Research Institute along with Ministry of Commerce & Industry, Industry Associations and NMCC can evolve schemes to address this critical issue.

Niche Marketing

• Since the traditional exports markets for Indian leather products such as USA, EU etc. are facing stiff competition from other developing countries, the exporters need to focus on niche market. Industries should focus on woman’s fashion footwear, where India has design advantage and cost competitive as compared to other exporting countries mainly East European countries. National Institute of Fashion Technology, National Institute of Design along with NMCC can evolve appropriate action plans to address this issue.

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Tannery Modernization

• On the technology front, most of the existing tanneries use outdated technology which inhibits them from producing good quality leather in spite of access to quality raw materials such as hides and skins. The tanneries require high doses of capital investment in order to improve the existing technology so that Quality leather could be produced and supplied to leather manufacturing units. The Tannery Modernization Scheme of the Government of India provides investment grants for enabling the small and medium enterprises to readjust quickly to the changed circumstances of WTO regime. Tanneries in China and other major competing countries have invested significant amounts of funds in large tanneries. Therefore, it is recommended that Ministry of textiles and Ministry of Commerce & Industry need to invigorate the existing modernization scheme and make it more acceptable.

Environmental Norms/Regulations

• Various leather producing units should be encouraged and be given incentives to adopt adequate pollution control measures. Since the Leather and leather products sector especially the tanneries are facing a lot of problems in terms of Environmental norms, there is an urgent need for modernizing the existing ones and also setting up new common effluent treatment plants at various leather industry clusters as per international standards. Ministry of Environment & Forests can act as a facilitator along with State Pollution Control Boards and Industry associations can provide the guidelines and assistance for setting up common effluent Treatment plants at major Leather clusters.

Cluster Development

• Another area where immediate intervention is required is developing integrated leather based product manufacturing clusters with Special Economic Zone facilities to be established, at major producing centers such as Ambur in Vellore district in Tamil Nadu, Agra and Kanpur in UP and Kolkatta in West Bengal. Govt. may set up manufacturing clusters for leather and leather products on the times of SEZs. Cluster approach will ensure lower cost of raw material as well as proper and pinpointed implementation of detailed policy package and ensure a clear road map for the fast track growth and development of the sector. It should also incorporate aggressive marketing plan and a coordinated time bound action plan to realize full potential of the sector. Ministry of MSME along with NMCC can identify the areas where Clusters development Programme need to be undertaken.

Rationalization of Duty Structure

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• It is essential to rationalize both the internal and external duty structure of inputs needed for the sector. In addition to the rationalization of the duty structure schemes are needed to encourage the existing producers of leather products for technological up gradation. Modernization requires a heavy dose of investment for which availability of capital is a major constraint. Since, most of the players in the leather sector are small and tiny industries, the government should take proactive steps for easing the capital constraint. Ministry of Commerce & Industry and Ministry of MSME along with NMCC can evolve strategies to rationalize the duty structure of inputs.

FDI in Leather Industry • The other option could be to encourage FDI in the leather sector. In order to increase FDI in

the Indian leather sector it is essential to encourage good governance and global bench mark of best practices and provide good infrastructure for the sector. Suitable measures to attract large FDIs and JVs in leather sector from potential investors from abroad would help in meeting the additional capital requirement of the sector. Ministry of Commerce & Industry along with NMCC can organize B2B meets to facilitate and encourage Foreign investment in the sector.

Skilled Manpower Requirement • Vocational training through ITI s, Textile Design & Management Institutions specially in

the area of Apparel Manufacturing, Quality Control and Designing needs to be encouraged so that skilled work force is available. Leather development Institutes needs to develop and organize training of trainers for development of workers and artisans of Leather sector. In order to increase the availability of a large number of skilled workers and artisans, efforts should be made to enhance the training and capacity building infrastructure in the country. Ministry of HRD along with AICTE and Industry Associations in tandem can develop special modules for ITIs and other educational institutions for addressing the current needs of the sector.

Duty Drawback for Exports • leather and leather products sector being labor intensive provides employment to millions of

skilled and semiskilled labor force. The sector is adversely affected by the current global meltdown and it is essential to provide a policy package in terms of reduction of taxes, credits at lower rates as well as duty drawback for exporters. Ministry of Commerce & Industry along with NMCC and Industry Associations can work out appropriate stimulus packages for supporting the sector.

Need for Database

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• Various suggested measures like review of policies which involves time to time assessment of strength and weaknesses of the sector, preparation of appropriate detailed policy package and detailed road map etc., are almost impossible to adopt in the absence of coherent statistical data base. Hence, it is essential that a comprehensive statistical data base may be developed for Indian leather sector. Leather exhibition and leather machinery fares/exhibitions needs to be organized more and more. Central Statistical Organization under Ministry of Statistical Programme Implementation along with NMCC and Industry Associations can work out the details regarding collection, classification, and compilation of required data.

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Economic Stimulus Package

• The central excise duty has been reduced by GoI as part of the economic stimulus packages Announced on December 7, 2008. The central excise duty on footwear of MRP between Rs.250/pair to MRP Rs. 750/pair has been reduced from 8% to 4% and for footwear of MRP exceeding Rs. 750/pair has been reduced from 14% to 10% as part of the economic stimulus package. In the stimulus package announced on February 24, 2009, there has been reduction in the general rate of central excise duty from 10 per cent to 8 per cent. The excise duty on footwear of MRP exceeding Rs. 750/pair has now been further reduced from 10% to 8% in the third stimulus package after being reduced from 14% to 10% in the first fiscal stimulus package. Ministry of Commerce & Industry along with NMCC and Industry Associations can plan for further reductions in duty structure.

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Business Line-Hindu Business Line February 04, 2005, (Global leather cos keen to set up shop in India)

Business Line- The Hindu Business line, March 22, 2005, (An interview with Rafinesque Ahmed, Chairman)

CII, New Delhi. (2006), (The Indian Footwear & Leather Industry: Key Challenges & Opportunities)

CMIE, Foreign Trade and Balance of Payments (various issues)

CRISIL- NMCC-March 2009, Enhancing Competitiveness of Indian Manufacturing Industry: Assistance in Policy Making, Final Report submitted to National Manufacturing Competitiveness Council.

Ghosh Jayati (2002) A Case Study of India, (Globalization, Export-Oriented Employment for Women and Social Policy), Social Scientist, Vol. 30, No. 11/12 (Nov. - Dec., 2002), pp. 17-60

Central Statistical Organization, Annual Survey of Industries (various issues)

Economic Survey: 2006-07, 2007-08 2008-09, Ministry of Finance http://www.tdctrade.com/imn/06050201/footwear048.htm

International Market News (India's unique dance to footwear dominance)

Kelkar V.L. & Rajiv kumar (1990) Industrial Growth in the Eighties, Emerging Policy Issues, Economic and Political Weekly, 27 January

http://www.tdctrade.com/imn/06050201/footwear048.htm

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Kurien, CT (1993) Indian Economic Reforms in the Context of Emerging Global Economy,

Economic and Political Weekly, April 10, pp 655-65.

Leathers Monthly Magazine of the Council for leather Exports, Various issues.

Mathur Shobha (2005) Moving up the value chain, Industrial Economist, February 15

Sinha, Saurabh and Sanjay Sinha (1992) Leather Exports: An Illusory Boom, Economic and Political Weekly, August 31, pp M-111-116

Tewari Meenu (2005) Global Standards and the Dynamics of Environmental Compliance in India's Leather Industry, Oxford Development Studies, Volume 33, Issue 2 June 2005 , pages 245 – 267. UNCTAD (2007) Trade Globalization and Development Oct 2006- May2007, New Delhi, India.

http://www.informaworld.com/smpp/title~content=t713439972~db=all

http://www.informaworld.com/smpp/title~content=t713439972~db=all~tab=issueslist~branches=33#v33

http://www.informaworld.com/smpp/title~content=g747746645~db=all

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WEB SITES

(a) www.newindia.com/klid/ (b) www.leatherindia.org (c) www. iilfleatherfair.com/register_now.html (d) www.icmr.icfai.org/casestudies (e) www.leatherindia.org (f) www.ciionline.org/news_new (g) www.nmcc.nic.in/pdf/Interview_v_Krishnamurthy.pdf (h) www. planningcommission.nic.in/plans/annualplan/1999-00 (i) www.indiabiznews.com/biznews/ (j) www.chinashoesexpo.com/ (k) www.newindia.com/klid/ (l) www.leatherindia.org (m) www.iilfleatherfair.com/register_now.html (n) www.ciionline.org/news_new (o) www.nmcc.nic.in/pdf/Interview_v_Krishnamurthy.pdf (p) www.indiabiznews.com/biznews/ (q) www.chinashoesexpo.com/ (r) www.indianleatherportal.com (s) www.tdctrade.com/imn/06050201/footwear048.htm

International Market News (India's unique dance to footwear dominance)

http://www.newindia.com/klid/

http://www.leatherindia.org/

http://iilfleatherfair.com/register_now.html

http://www.icmr.icfai.org/casestudies


http://www.ciionline.org/news_new

http://www.nmcc.nic.in/pdf/Interview_v_Krishnamurthy.pdf

http://planningcommission.nic.in/plans/annualplan/1999-00

http://www.indiabiznews.com/biznews/

http://www.chinashoesexpo.com/

http://www.newindia.com/klid/


http://www.iilfleatherfair.com/register_now.html

http://www.ciionline.org/news_new

http://www.nmcc.nic.in/pdf/Interview_v_Krishnamurthy.pdf

http://www.indiabiznews.com/biznews/

http://www.chinashoesexpo.com/

http://www.indianleatherportal.com/

http://www.tdctrade.com/imn/06050201/footwear048.htm

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Annexure – 1

Survey Questionnaire: Company/Manufacturing Unit

National Productivity Council is carrying out a Nation wide survey across four Manufacturing Sectors (Food Processing, Textile & Clothing, Leather & Leather Products and Electronics & IT hardware) on behalf of National Manufacturing Competitiveness Council (NMCC), DIPP, Ministry of Commerce and Industry, GoI. The objective of this stakeholder survey is to identify and understand major constraints that are hindering the growth of manufacturing sector in the path of productivity growth and export competitiveness and to suggest Sector Specific recommendations to NMCC with a view to enhance sectoral/manufacturing productivity and export competitiveness.

(Please fill as per instructions given with each question. Write codes/ values in the box provided at the right hand side)

1.0 Sector (1= Food Processing, 2 = Textile & Clothing, 3 = Leather & Leather Products, 4 = Electronics & IT Hardware)

2.0 State (1 = AP, 2 = Delhi & NCR, 3= Gujarat, 4 = Himachal Pradesh, 5=Maharashtra, 6=Karnataka, 7 = Kerala, 8 = North East, 9 = Rajasthan, 10 = Punjab, 11 = Tamil Nadu, 12 = UP,

13= West Bengal)

3.0 Location (1= Industry Centre, 2 = Cluster, 3 = EPZ, 4 = SEZ, 5=Others

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4.0

Factory/Unit/Organisation specific information Company Name & Address: -------------------------------------

---------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------

Website if any:----------------------------------------------------------------

Contact Person’s Name-----------------------------------------------------------------

Telephone if any: ----------------

e-mail address if any: ----------------------------------------------------

4.1 Year of Establishment

4.2 What is the Primary Business of your company ?

(1=Manufacturing, 2=Trading Company, 3= Multinational company,

4=Others, _______________________________________________

4.3 What is the nature of your company? (1= Small Scale Sector, 2=Informal Sector, 3= Registered

Manufacturing, 4= Others)

4.4 What is the category of your company? The primary Business

(1= Small, 2=Medium, 3=Large, 4=Other,)

4.5 Does Your organization has Quality Accreditation like ISO 9000,

HACCP etc? (1= yes, 2=No)

4.5.2 If yes, please specify whether the accreditation has helped in boosting business growth? (1= yes, 2=No)

Annual turnover of your organization/Company/Enterprise (Rs lakhs) 2003-04

4.6

2004-05

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2005-06

2006-07

2007-08

4.7 Average profitability (Profit After Tax) of your enterprise during 1991 to 2000 (considering 1991 as base year) (1= Increased, 2= Decreased, 3=No Change)

4.8 Average profitability (Profit After Tax) of your enterprise after 2000 (keeping 2000 as base year) (1 = Increased, 2= Decreased, 3=No Change)

4.8.1 What was the extent of increase in profitability after 2000 (keeping 2000 as base year) (1=0-5%, 2=5-10%, 3=10-25%, 4=25% & above)

4.8.2 What was the extent of decrease in profitability after 2000 (keeping 2000 as base year) (1=0-5%, 2=5-10%, 3=10-25%, 4=25% & above)

4.9 Share of Foreign Direct Investment in your Enterprise

(1=0-5%, 2=5-10%, 3=10-25%, 4=25-50%, 5= Above 50%, 6=Not Applicable)

4.10 What is the extent of foreign ownership of your company?

1=No foreign ownership, 2=Foreign partner(s) have less than or equal to 50% ownership, 3=Foreign partner(s) have more than 50% ownership, 4=Other)

4.11 Did your organization acquire any firm in other countries?

(1=No acquisition, 2= Full ownership, 3=less than or equal to 50% ownership, 4=more than 50% ownership,)

4.12 Extent of Usage of ICT in firms’ operation/production.

(1=0-5%, 2=5-10%, 3=10-25%, 4=25-50%, 5= Above 50%, 6=Not Applicable)

4.13 Did your Organisation conduct/commission any Research & Development (R &D) during the last five years? (1= yes, 2=No,)

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4.14 Did your Organisation get any product patented during the last five years? (1= yes, 2=No,)

4.14.1 If yes, please mention the number & name of the product

4.15 Did your Organisation introduced any product innovations during the last five years? (1= yes, 2=No,)

4.15.1 If yes, please mention the number & name the innovation

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5.0 Employment Related Information

Total Number of Employees in your organization (Nos) 2003-04

2004-05

2005-06

2006-07

5.0

2007-08

5.1 Employment growth in the organization during the last five years. (1= Increased, 2= Decreased, 3=No Change,)

5.1.1 If Increased, please specify the range of increase in employment during the last five years?

(1=0-5%, 2=5-10%, 3=10-25%, 4=25% & above)

5.1.2 If decreased, please specify the range of decrease in employment in your organisation in the last five years? (0=1-5%, 2=5-10%, 3=10-25%, 4=25% & above) (specify)

5.2

The casualisation of labour during the last five years has (1=Increased, 2=decreased, 3=No change, 4=Don’t know)

5.3 Growth in wages/salary in the organization after 2000 (with 2000 as base) (1= Increased, 2= Decreased, 3=No Change,)

5.4 If Increased, please specify the range of increase in wages/salary in your organisation in the last five years?

(1=0-5%, 2=5-10%, 3=10-25%, 4=25% & above)

5.5 If decreased, please specify the range of decrease in wages/salary in your organisation in the last five years? (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above)

6.0 Trade Related Information

Is your organization engaged in Exports

(1=Yes, 2= No)

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6.1 If yes, what is the percentage of Export to Total Sales

(1=1-10%, 2=10-25%, 3=25-50%, 4=50-75% 5=Above 75%)

6.2 Growth in export during the last five years. (1= Increased, 2= Decreased, 3=No Change,)

6.2.1 If Increased, please specify the range of increase in export during the last five years?

(1=0-10%, 2=10-25%, 3=25-50%, 4=50% & above)

6.2.2 If decreased, please specify the range of decrease in export in during in the last five years?

(1=0-10%, 2=10-25%, 3=25-50%, 4=50% & above)

6.3 Is your organization engaged in Imports

(1=Yes, 2= No)

6.3.1 If yes, what is the percentage of Import to Total Sales

(1=1-10%, 2=10-25%, 3=25-50%, 4=50-75% 5=Above 75%)

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6.4 If yes, the level of import of raw material for your company’s production requirement.

(1=0-10%, 2=10-25%, 3=25-50%, 4=50-75% 5= 75 & above)

6.5 The level of import of finished products by your company?

(1=0-10%, 2=10-25%, 3=25-50%, 4=50-75% 5= 75 & above)

6.5.1 Please specify the major country from where you are importing finished products. ___________________________________________

6.6 Please mention your export destinations 6.6.1 Product Description Countries you were trading in the

past

6.6.2 Product Description Countries you are Currently trading with (Country Name)

Please mention the name of competing Countries

Also specify the Competitive Advantage of that Country: (1=Cost of Product, 2= Latest Technology, 3=Quality of product, 4=Other)

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6.6.3 Product Description Countries you are planning to trade in near future

6.7 The factor (s) hindering the quantity of imports

(1= Import pricing Scheme,2= Import licenses, 3=Import quotas, 4=Import prohibition, 5=Quantitative safeguard measures, 6=Export restraint arrangement,7=Non trade Barriers, 8=Any other)

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6.8 The factor (s) affecting the export of your products

(1=Export taxes, 2= Export quantitative restriction, 3=Certification, 4=Inspection fee, 5=State trading administration, 6=Dual pricing schemes, 6=Non trade barriers,7=Any other)

7.0 Domestic Market Related Information

What is the market share of your product? Please specify the range (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above)

7.1 What is the percentage of Domestic Sales to Total Sales

(1=1-10%, 2=10-25%, 3=25-50%, 4=50-75% 5=Above 75%)

7.2 Growth in the domestic demand of your products after 2000 during last five years. (1= Increased, 2= Decreased, 3=No Change)

7.2.1 If Increased, please specify the range of increase in the domestic demand of your products in the last five years? (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above)

7.2.2 If decreased, please specify the range of decrease in the domestic demand of your products in the last five years? (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above)

7.7 Extent of competition in the domestic market from local companies? Please specify the range [1=Intense (>20 players), 2=Medium (10to 20 Players), 3=Low (0-10 Players), 4=No Competition]

8.0 Cost Related Information

The Cost competitiveness of your company during the last five years. (1= Increased, 2= Decreased, 3=No Change, 4=Other)

8.1 If Increased, please specify the range of increase in cost competitiveness of your products in the last five years? (1=1-10%, 2=10-25%, 3=25-50%, 4=50% & above)

8.2 If decreased, please specify the range of decrease in cost competitiveness of your products in the last five years? (1=1-

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10%, 2=10-25%, 3=25-50%, 4=50% & above)

8.3 Please indicate the Current percentage (%) contribution of the following components to total cost of production

8.3.1 Wages & Salaries (1=1-10%, 2=10-25%, 3=25-50%, 4=50% & above)

8.3.2 Other labor related cost (1=1-10%, 2=10-25%, 3=25-50%, 4=Above 50%)

8.3.3 Raw Materials (1=1-10%, 2=10-25%, 3=25-50%, 4=50% & above)

8.3.4 Fuel and Energy (1=1-10%, 2=10-25%, 3=25-50%, 4=50% & above)

8.3.5 Interest Charges (1=1-10%, 2=10-25%, 3=25-50%, 4=50% & above)

8.3.6 Security (1=0-10%, 2=10-25%, 3=25-50%, 4=50% & above)

8.3.7 Taxes (1=0-10%, 2=10-25%, 3=25-50%, 4=50% & above)

8.3.8 Others(1=0-10%, 2=10-25%, 3=25-50%, 4=50% & above)

8.4 Please indicate the Change in contribution of the following components

to total cost of production

8.4.1 The share of wages and salaries in the cost of production over the last five years (1= Increased, 2= Decreased, 3=No Change)

8.4.2 The share of Other labor related cost in the cost of production over the last five years,( 1= Increased, 2= Decreased, 3=No Change)

8.4.3 The share of Raw Materials in the cost of production over the last five years, (1= Increased, 2= Decreased, 3=No Change

8.4.4 The share of Interest Charges in the cost of production over the last five years, (1= Increased, 2= Decreased, 3=No Change)

8.4.5 The share of Security in the cost of production over the last five years, (1= Increased, 2= Decreased, 3=No Change)

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8.4.6 The share of taxes in the cost of production over the last five years, (1= Increased, 2= Decreased, 3=No Change

8.4.7 The share of other elements in the cost of production over the last five years, 1= Increased, 2= Decreased, 3=No Change)

8.5.1 Is there any increase in cost of production of your product in recent years due to increase in exports of raw materials. (1= Yes, 2=No) If yes, please specify the range (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above)

8.6.1 Is there any increase in cost of production of your product in recent years due to decrease in imports of raw materials. . (1= Yes, 2=No). (1= Yes, 2=No)If yes, please specify the range (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above)

8.7.1 Is there any decrease in cost of production of your product in recent years due to increase in exports of raw materials? If yes, please specify the range (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above)

8.8.1 Is there any decrease in cost of production of your product in recent years due to increase in imports of raw materials. . (1= Yes, 2=No) If yes, please specify the range (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above)

9 Price Related Information

The Price competitiveness of your products during the last five years. (1= Increased, 2= Decreased, 3=No Change)

9.1.1 If Increased, please specify the range of increase in Price competitiveness of your products in the last five years? (1=0-10%, 2=10-25%, 3=25-50%, 4=50% & above)

9.1.2 If decreased, please specify the range of decrease in Price competitiveness of your products in the last five years? (1=0-10%, 2=10-25%, 3=25-50%, 4=50% & above)

9.2.1 Is there any increase in Price of your product during the last five years due to increase in imports of raw materials? (1= Yes, 2=No) If yes, please specify (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above)

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9.3.1 Is there any increase in Price of your product in last five years due to increase in exports of raw materials. (1= Yes, 2=No) If yes, please specify the range (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above)

9.4.1 Is there any decrease in Price of your product in last five years due to increase in imports of finished goods. (1= Yes, 2=No) If yes, please specify the range (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above)

9.5.1 Is there any decrease in Price of your product in last five years due to decrease in exports of finished goods. (1= Yes, 2=No) If yes, please specify the range (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above)

10.0 Factors Affecting Productivity

10.1 The Labour Productivity (out put produced relative to number of workers/employees used) of your firm during the last five-year (1= Increased, 2= Decreased, 3=No Change)

10.1.1 If Increased, please specify the range of increase in Labour Productivity in your enterprise in the last five years? (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above)

10.1.2 If decreased, please specify the range of decrease in Labour Productivity in your enterprise in the last five years? (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above)

10.2 The Total Factor Productivity (i.e., output produced relative to all inputs used) of your enterprise during the last five-years (1= Increased, 2= Decreased, 3=No Change)

10.2.1 If Increased, please specify the range of increase in Total factor Productivity in your enterprise in the last five years? (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above)

10.2.2 If decreased, please specify the range of decrease in Tota factor Productivity in your enterprise in the last five years? (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above)

10.3 Identify the main factors that have affected labour productivity in your Enterprise in the last five Years (Please mention five)

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1.

2.

3.

4.

5.

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Identify the main factors that have affected Total Factor productivity in your Enterprise in the last five Years (Please mention five)

1.

2.

3.

4.

10.4

5.

10.5 Have you introduced any measures that have enhanced the labour productivity of your enterprise in the last five years?

(1= yes, 2= No)

10.5.1

If yes, (Please Specify)

10.5.2

If No, Please indicate the reasons

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10.6 Have you introduced any measures that have enhanced the Total Factor Productivity of your enterprise in the last five years? (1= yes, 2= No)

10.6.1

If yes, (Please Specify)

10.6.2

If No, Please indicate the reasons

11.0 Factors responsible for Competitiveness

The competitiveness of your company during the last five years.

(1= Increased, 2= Decreased, 3=No Change)

11.1 Availability of Raw materials for production?

1=Imported, 2=Within country, 3=Within Region/State, 4= Other (Please specify)

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11.2 Availability of Quality Human Resource in the last five years

(1= Increased, 2= Decreased, 3= No change)

11.3 Does the present Educational system in the country is catering to the industry’s requirement? (1= yes, 2= No)

11.4 Labour relations in the state are productive? (1= yes, 2= No)

11.5 Are you satisfied with the quality of infrastructure (both Social and physical) available in your state? (1= yes, 2= No)

11.5.1 If No, Please specify the physical infrastructure that requires attention towards development and maintenance? (1= Road, 2= Rail, 3=Airport, 4= Port, 5= Power, 6= ICT, 7= Cold storages & warehouses, 8=Other) (Please Specify)

11.5.2 If No, Please specify the social infrastructure that requires an attention towards development and maintenance?

(1=School, 2= Higher Education, 3=Technical Institution, 4= General Hospital, 5= Specialized Medical Centres, 5=Other) (Please Specify)

11.6 Are you satisfied with the Government’s interface with business/private sector ? (1= yes, 2= No)

11.7 Is your State government is friendly towards investors?

(1= yes, 2= No)

11.8 Are you satisfied with the extent of computerization of government records? (1= yes, 2= No)

11.9 Corruption level in the government during last five years.

(1= Increased, 2= Decreased, 3=No Change)

11.10 Are you satisfied with the Transparency in your government?

(1= yes, 2= No)

12.0 Identify the main factors that have affected the competitiveness of your industry in the last five Years (Please mention five)

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1.

2.

3.

4.

5.

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13.0 What measures have you taken over the past five years to boost Competitiveness in the domestic and export markets?

14.0 What are your views regarding the enhancement of Productivity and Competitiveness in India? (Please mention)

15. Policy Interventions that are urgently required from the Government for enhancing productivity and competitiveness of your sector (Please mention five)

1.

2.

3.

4.

5.

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16.0. Any other comments : (Please specify )

Thank you

Name of the Official/Investigator:------------------------------------------------

Signature : -----------------------------------------------------------

Place of Survey : ---------------------------Date: ------------------------

Annexure – 2

LIST OF UNITS CONTACTED FOR THE STUDY

Rahman Industries Ltd., 184/167, Wajidpur, Jajmau, Kanpur 208 010, U.P.

Prachi Leathers Pvt. Ltd., C3, Udyog Nager, Near New CTI, Kanpur 208 022

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Qaiyum Leather

Rohit Surfactants (P) Ltd., 98-B, Dada Nagar, Kanpur

Mirza International Ltd., 14/6, Civil Lines, Kanpur

United Exim, 14/106, Civil Lines, Kanpur 208 001

Unique International, 980-D, Wajidpur, Jajmau, Kanpur 208010

Model Tanners Ltd., Unnao, Kanpur

Star International Pvt Ltd., Star Towers 109/366-2, R.K. Nagar, G.T. Road, Kanpur

Superhouse Limited, 150 sr. Road Jajmau, Kanpur

Vinit Gloves Manufacturing Pvt Ltd., P-44 Udayan Industrial Estate, 3 Pagladangs Road Kolkata

Poeja Exports A17/4 General Flowe Petedh Complex, Dapods Road, Owal Bhiwand:

Haryana-chemical Leather Limited, 1004 Bhipaji cama Bhawan, Bhikaji Cama Place New Delhi

Ashma International X/2980, Gali No.4, Raghupura No. 2, Gandhi Nagar New Delhi

Indi Part Apparels (New name Think Fashion)220-A,First floor, Rama Market, Pitampura, New Delhi

AlAlban International, B-97/B, Jwahar Park Devli Road, Khanpur New Delhi

T. abdul wahid&Co. M.C. Road, Solur, Ambur, Vellore Distt.

Model Tanners (India) Pvt Ltd.,c/o Sultantanners

M/s Overseas Leather Goods Co. Pvt Ltd.,, 61A/14, Beliaghata Main Road, Kolkata

Evergreen international Limited, 756, Udyog Vihar, Phase-V, Gurgaon

Dawar Footwear Footwear Ind. 12.5 K.M. agra Delhi Road, Sikandra, Agra

Sara Ladher, 86 Bajnnai Ko.7 sr., Pannel Chennai

Basant Overseas, Opp. Amar Ujala Press, NH By-Pass Road, Agra

Gupta Overseas, Bye Pass Road, Agra, India

Sanghavi Shoes Accessories Pvt. Ltd., 11, Hari kurpa Raod, 10th Road, Chembur, Mumbai

Ramjee Leather Supplies,A-Arumabakkam, Chennai-106,TN14, Sidco Indl Estate

Mayur Uniioquoters Ltld.28, IV Floor,Laxmi Complex, Jaipur.

R.P. Rubber Products Pvt. Ltd.,B-111C, Road No.9-C, VKI, Jaipur

Nagna Foot Exorters, 949, Nnak Ki Chakki, Rehana Nagna Cmahak, Raniganj Bazar, Jaipur

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Sanjay Leather Factory, S-258, G. Road No 5F1Vishvakarma Indl Area, Jaipur

T. Abdul wahid& Co. M.C. Road, Solur, Am,bur, Vellore. Distt.

Iman Exports, 5, Nabikham subeden street, periament, Chennai

Bachi Shoes (India) Pvt. Ltd., 15, Sami Street, Periamet, Chennai-600 003

Franco Leone Shoes P. Ltd., 122 HPSIDC, Baddi Solan

C & E Ltd., Plot No. 120, Industrial Area, Baddi

Oscal Leather (P) Ltd., E - 221, Industrial Area, Phase VIII B, Mohali

DS Shoes Co., 20B EPSP Phase I Jharmajr

C&E Ltd., Plot No. 69 B, HPSSDC Baddi

Kadhi Ashram Gram Silpa, 192-193, 17C, Chindigarh

Drisn Shoes, I.A. Phase-I Pancnkula

Phulkari Punjab Govt. Emgrium , 27, Sector-17E Chandigarh

Reeaok, Vin Dherowal

M&B Footwears Pvt Ltd.,, 79 CPSP Phase-I Inarmajri. Baddi

VBL Innovations Mib.III) Jharmajri .M.P.

Kayishema Creatives 4578, Ist Floor, Mahavir Bazar, Cloth market Fatechpuri, New Delhi

AVG 12pex Pvt Ltd.,, 37, Rani Jhansi Road, New Delhi

Kirpal Export Overseas, BP-130, shalimar Bagh (West), New Delhi

Bagga Industries, 5/2 Maya Puri, Industrial Area, Phase-2, New Delhi

Trane workel trading co. 29994/2A, Street No. 17, Ranjit Nagar, New Delhi

Balothia Shoe Maker, Opp. Sawai Man Singh Town Hall, Hawa Mahal Bazar, Jaipur 302002

Yoro Leathers, 80. MES Road, Ganapayhi Puran, Tambarm, Chennai

UJP Enterprises, 63, MES Road, East Tambram, Chennai 600059

Baba Center, 9-1-A1, Road, Indistrial Nacharan, HyderABAD-76

Sterling Shoes, Plot No. 5-A/8, IDA, Nacharam, Hyderabad 500076, AP

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Annexure - 3

Methodology Adopted for Partial and Total Factor Productivity Estimations

Productivity can be measured in terms of both partial and total factor productivity methods. Most commonly used partial productivity measures are Labour Productivity and Capital Productivity estimations. The partial productivities are measured as a ratio of Gross Value Added per worker or per unit of capital invested.

The partial productivity methodology is based on the premise ‘ceteris paribus’ that only two factor inputs used in the production process such as labour and capital. Details regarding the data construction and estimation procedures are given as below.

A. Labour Productivity

• Labour input is considered as the total number of persons engaged in the production process. The data has been compiled from Annual Survey of Industries summary results for factory sector data base for various years. The Gross Value Added data has been first deflated by the whole sale price index for the leather(Broad Category). The formula for calculating the labour productivity can be given as follows:

Labour Productivity (LP) = ((Gross Value Added/Price Index) X 100) No. of Persons Engaged

Labour Productivity Growth

• Once the labour productivity has been calculated, we can estimate annual labour productivity growth using the growth rate estimation formula :

Labour Productivity = Labour Productivity t – Labour productivity t-1 100 Growth Labour Productivity t-1

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Labour Productivity Growth Index:

To understand the trends in Labour Productivity Growth, we can construct year to year growth rates as an index of Labour Productivity Growth Rate. Initial value of the series is considered equal to 100 and the subsequent years Labour Productivity Growth Rates are added to it cumulatively. This will provide us an index of Labour Productivity Growth for the textile and garment sector for the years starting from 1995-96 to 2005-06.

B. Capital Productivity

Since capital investment is given as the book value in the ASI data, we have to estimate the capital stock in operation for every year. The Capital stock estimation follows the procedure given below.

Capital Stock Estimation To calculate capital stock we have used Perpetual Inventory Method. Capital stock has been estimated from the book value of Gross Fixed Capital compiled from the ASI Database.

• Fixed capital data from ASI for the textiles and garments sector taken for the years 1995-2006. • The book value of fixed capital at 1995-96 is multiplied by Gross net ratio of capital for getting

initial year capital stock. • Incremental capital during the year 1996-97 at constant prices (deflated with the machinery and

machine tools prices at 1993-94 prices) is added to the initial year capital stock of 1995-96 for getting the capital stock for 1996-97at constant prices. Incremental capital = ((Fixed capital 1996-97 - Fixed capital 1995-96)

To calculate the capital productivity we have divided Gross Value Added at constant prices by the estimated fixed capital. The formula used to calculate the capital productivity is as follows:

Capital Productivity= Gross Value Added at constant prices Capital stock at constant prices

Capital Productivity Growth

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Capital Productivity

Growth = Capital Productivity t - Capital Productivity t-1

Capital Productivity t-1

Capital Productivity Growth Index

As in the case of Labour Productivity Growth Index, Capital Productivity Growth Index is also constructed on a scale 100.

Gross Value Added Growth Rate = GVAt – GVA t-1 x 100

GVA t-1

Capital Productivity Growth Index:

To make the index of Capital Productivity Growth Rate, first of all assume the initial value of series equal to 100 then add subsequent terms of the Capital Productivity Growth Rate cumulatively. This will give us the index value of Capital Productivity Growth Rate.

C. Total-Factor Productivity Growth (TFPG)

Total Factor productivity Growth has been estimated using the Divisia index method. Here, it is considered that Total Factor Productivity Growth is the result of technical progress. Technical progress or TFPG is estimated as a residue of the difference between output growth rates and input growth rates.

. .

TFP = GVA – [WL x Labour Productivity Growth + WK x Capital Productivity Growth]

Where

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WL + WK = 1

and

WL = Wage Share in Total Cost

WK= Capital Share in Total Cost

Total-Factor Productivity Growth Index

As in the case of Labour and capital productivity , Total Factor Productivity Growth Index can also be constructed with the base 100 for the initial year and adding the subsequent growth rates cumulatively to it.

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