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Export duty gets under leather industry skin

S. Gopikrishna Warrier

CHENNAI, Dec. 14

EVEN while the leather industry is preparing to put its best foot forward for the India International Leather Fair, there is a controversy brewing over the export duty imposed on semi-finished leather.

At the heart of the controversy are some notifications issued by the Central Government in mid-October. These orders remove the regulation of export of all raw hides and skins, semi-finished and finished leathers in line with the World Trade Organisation requirements.

However, an export duty has been slapped on raw hides and skins and semi-finished leather. Finished leathers are exempted from export duty. So are leathers for clothing, fur, book binding, skiver and footwear upper leathers.

The notification has raised the hackles of the small tanners and semi-finished leather manufacturers. Though the freeing of export is welcome, they feel that the duties are rather steep, making them uncompetitive in comparison to neighbouring countries.

They feel that the Centre has acted against the thrust of the representation they had been making. Though the Commerce Minister, Mr Murasoli Maran, announced a "Pongal gift", freeing the export of East India tans, what spoilt the gift for small tanners w as the 15 per cent export duty. Similarly, though exports of other kinds of raw and semi-finished leathers have been made free, the heavy export duty nullifies this benefit, according to them.

It is not the Government that is to be blamed wholly for this, according to Mr N. Abdul Rahim, President, Tamil Nadu Leather Tanners, Exporters and Importers Association (Talteia). The hopes of small tanners to realise the right prices are always spoilt by the larger leather product manufacturers.

According to him, these product manufacturers seek policies that are in their favour and to the disadvantage of small tanners. By preventing the export of semi-finished leather, the larger players manage to push down their domestic prices. This means tha t the large players get better margins for their products, which they manufacture from these leathers, while the small tanners get crushed, he added.

His views are echoed by other small tanners. "There is an 80-20 rule in the leather industry," said Mr P. Oosman Basha of Aayisha & Aayisha. That is, 20 per cent of the larger players are neither letting the small tanners export, nor are they buying thei r leathers. Even when they pick up leathers, it is on long-term credit.

"This policy is not benefiting the Indian tanner but those from Pakistan, Nepal and Bangladesh," commented Mr Jawaid Alam Iraqi of S.S. Leather Exports. This has encouraged smuggling of Indian raw hides and skins to Bangladesh and Nepal.

Mr N. Venkatramana of Alekhya Leathers argued that if exports are made free with no export duty for raw and semi-finished leathers, the market would settle within six months. Even some product manufacturers feel that the export duty is on the higher side . "Frankly, some of us feel that 60 per cent is on the higher side," said Mr Mohan Sreenivas, Southern Region Chairman of the Council for Leather Exports. "Perhaps the Government wants to see at what level the industry will be comfortable."

The President of the All-India Skin and Hide Tanners and Merchants Association (Aishtma), Mr Rafeeque Ahmed, said his association preferred a graded duty structure, with raw hides and skins getting the highest export duty and crust getting the lowest.

With the present structure, crust has 60 per cent duty, four times higher than that for East India tans. As a result, there are no exports of crust.

However, the product and finished leather manufacturers want the primary benefit of semi-finished leather to stay within the country, to offset the disadvantages that the Indian industry faces.

"We are not the creators of fashion like the Italians and the French," said Mr Sreenivas. "In fact, we have to follow what they create."

Once these countries have created enough stock of leathers of particular colours or textures, they bring it to fashion. The Indian manufacturers have to create products to fit these fashion trends. "At that time we realise that our raw materials have bee n exported we will be at a disadvantage," he added.

Dr Zackria Sait, Chairman, Indian Finished Leather Manufacturers and Exporters Association, said that the 60 per cent export duty should not be disturbed.

The growth potential in the industry is in the area of finished leather and products. "Why should we give away our raw material and spoil our potential for growth?" he asked.

The domestic industry is facing a severe shortage of raw material, according to him. Once the duties are removed, large companies from abroad will come and start buying and exporting raw material necessary for the Indian industry.