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Overview of the Leather Industry

The Indian leather industry occupies a place of prominence in the Indian economy in terms of its export earnings, employment generation and growth. The industry comprises tanning & finishing, footwear & footwear components, leather garments, leather goods and finished leather.

The tanning industry in India is primarily concentrated in Tamil Nadu, West Bengal, Uttar Pradesh and Maharashtra. It is heavily dependent on the availability of indigenous raw hides and skins for its supply of raw materials, which is very fragmented. In the Indian tanning sector, semi-finished leather and finished leather is produced mainly by the small units, whereas the large units are usually fully integrated.

While the Southern region including Tamil Nadu focuses on finished leather and footwear component, the eastern region including Kolkatta and West Bengal accounts for nearly 66% of the country’s exports of leather accessories like wallets and handbags; whereas in the North, Agra and Kanpur are prominent exporters of leather garments & harnesses and footwear.

Leather footwear is one of the major growth drivers of the leather industry and has been identified as a focus area. India exports mainly to the US, Germany, UK and Spain with leather footwear being one of the largest exported products among different categories of leather exports. Value-added leather products constitute close to 80% of India’s leather exports, thus marking the transition of India from an exporter of raw hides and skins to a reliable source of value-added leather products. The Indian leather industry manufactures a range of leather goods, viz., shoe uppers, belts, leather garments, gloves, etc for the domestic and exports market.

According to National Manufacturing Competitiveness Council (NMCC), the size of Indian leather industry is approximately Rs. 250 billion and it employs around 2.5 million people. Around 10% of world’s supply of leather is processed in India. The leather exports turnover in FY07 stood at approximately US$ 2.9 billion, which is about 2.3% of India’s total exports. Exports of finished leather grew at a moderate rate in comparison with various types of leather products. The fragmented nature of the leather industry has resulted in nearly 75% of the industry being operated by the SSI units, which are facing strong competition from their Chinese counterparts.

Source: RBI

Outlook

With rising GDP and a consumption pattern increasingly favouring leather products, the demand for leather products in India is expected to grow at 3-4% per annum in the near future. The export of leather products is growing in view of the increasing preference for products made of leather. The Indian Council for Leather Exports (CLE) has set an ambitious target of doubling Indian leather exports to US$ 5 billion by FY10. This would imply attaining an annual growth rate of 16% between FY06-FY10. However, given the current appreciation in the Indian Rupee and its impact on exports, there could be a moderation in the growth of this sector.

With the world leather industry shifting its manufacturing base to the developing countries; the relative ease of availability of raw material, skilled labour, designing capabilities and technical know-how make India an attractive destination for FDI into leather industry. However, the industry is confronted with major challenges like effluent management, quality specifications, non tariff barriers and cost of compliance to various standards. Nonetheless, large investments, optimising of production capacities, upgradation of technology and strengthening of enabling infrastructure – along with increasing demand – would drive the growth of Indian leather industry.

Cluster Insights

The following Cluster Insights are aimed at grasping the pulse of the small and medium enterprises operating in their respective industries. The attempt is to chart their operational structure, business practices, future plans, etc., for which purpose, we have considered the companies profiled in this publication

Key characteristics of the cluster

• The average revenue growth of the leather companies in the last two years was around 20%.
• The companies operated at an average capacity utilisation of 83%.
• 17% of the companies operated with two or more manufacturing facilities.
• 92% of the companies are involved in exports.
• Europe is the most preferred destination for export of leather goods, followed by Asia (excluding Middle East).
• Around 76% of the companies generated more than 50% of their revenue from exports.
• Around 20% of the companies manufacture and market branded products.
• Around 52% of the companies were relatively older and started operations prior to 1990s while 38% of the companies were established between 1990s and 2000. Around 12% were newly commenced operations post- 2000.

Ownership Pattern

The ownership pattern of leather companies is inclined towards private limited companies.

• Of the total private limited companies covered, 69% fall in the turnover bracket of Rs 10 - 100 mn.
• 75% of the private limited companies have been involved in manufacturing activities.
• Proprietary concerns expect an average revenue growth of 36% in the next two years while private limited companies and partnership firms expect 27% and 23% revenue growth in the future.

Sub-segment

Most of the companies in the finished leather segment fall in the turnover bracket of Rs 10 – 100 mn followed by leather goods and leather garments.

Source: RBI

• 85% of the companies manufacturing leather goods followed by 80% of the leather garments manufacturers earn more than 50% of their revenue from the international market.
• The average revenue growth of the companies dealing in finished leather is 19% and for leather footwear is 24%.

Turnover Bracket

Europe and Asia (excluding Middle East) are the most preferred destinations for exports of leather and leather goods.

• Almost 81% of the companies covered in the turnover bracket of Rs 10 – 100 mn earn more than 50% of their revenue from overseas market.
• The companies in the turnover bracket of Rs 10 – 100 mn operate at an average capacity utilisation of 84%.

Growth and Future plans

• The companies covered in the study expect an average revenue growth of 28% in the next two years.
• Most of the companies have envisaged future plans. These include entering into new markets, undergoing capacity expansion, diversifying and modernizing. Around 38% of the companies are willing to enter into new markets, while 30% are planning for capacity expansion and rest are a mixed bag undertaking multiple plans like diversification and modernisation.

Cluster benefits and hindrances

Marketing initiatives, quality upgradation, manpower training and technology were the key benefits derived by the companies. On the other hand, funding from institutions, government subsidies, lack of proper infrastructure and availability of skilled labour were the major obstacles observed for the companies covered in the sector.