`India cannot be competitor to China'

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R. Balaji

Chennai, March 21

THE mood in the leather industry is upbeat as the focus of international markets turns to India. Mr Rafeeque Ahmed, Chairman, Council for Leather Exports, talks to Business Line on some of the trends, issues and concerns.

Exports up to October 2004 in the current year have crossed $1.5 billion, an 11 per cent growth over the same period last year. This trend is expected to hold and leather exporters are hoping to cash in.

What are the prospects for the leather industry as it comes out of a dip?This year, 2004-05, has been the best compared to the last three years. Export growth is expected to be 13-14 per cent by March-end against last year's decline of 5-6 per cent. We feel that this will continue in the coming year also.

What is driving this change?The markets are looking for new sources in addition to China. Over the years, there have been wage increases in China, and though it has not yet affected them, it could become a factor in the next three years. But India cannot be a competitor to China, which has a 20 per cent market share globally compared to India's 2-3 per cent.

China's factories are geared for volumes and dominate the US market. Indian units are more suitable for the European markets which need relatively smaller volume but varied designs.

We do need factories that target the US. Some factories are coming up. Eventually, at least half a dozen of leading players will have to go public to raise funds for investment and hike production volumes.

What segments are driving this growth? Leather footwear is the leader followed by footwear components and non-leather footwear. These will be the drivers of growth and contribute to more than $2 billion in exports. Leather goods will also be on the growth path.

Leather garments can be volatile because fashion changes fast. Investments are low and orders will move to China or Turkey depending on wage levels and raw material costs. But we are pushing this segment also and hope to set up a leather garments park possibly in Noida. Delhi is a strong centre for leather garments production.

Exports of finished leather will go down but remain around 10-15 per cent.

Leather units have largely been family-owned. What has been the implication?Though leather units have traditionally been family owned they are adapting well to change. I have been in this business for 40 years. Most leading companies today are completing 40-50 years in the business and have come a long way. The third generation, which understands international trade, is taking over and is well geared to do that, not just in the South but in the other regions also. Companies are looking to go public to increase capacities, scouting for international joint ventures, and in the next 2-3 years will be looking at international sourcing.

Family businesses also have had their own strengths. Leather industry needs hands-on management. You have to deal with the unorganised sector on one end, for raw materials - skins, hides and products - and at the other the organised sector, globally. Look how - except for one or two like the Tatas and HLL - many large players could not sustain in this business.

The industry has been seeking support for its expansion plans. How has the response been from the Government? We hope to meet with the Finance Minister, Mr P. Chidambaram next week to seek his support.

One issue is the Rs-400 crore modernisation fund which has been pending with the Ministry for long and needs to be expedited.

The other is our demand for doing away with countervailing duty on machines and some tanning extracts which are not available in India.

The industry also needs clarification on service tax, which is likely to be levied on services abroad, such as warehousing, exhibition and brand promotion activities. If 10-12 per cent were levied on us it would hike costs for every export-based industry, not just leather. It would be a major disincentive for exporters.

(This article was published in the Business Line print edition dated March 22, 2005)
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