Enhance support under MEIS to 5% March 2018 issue

Enhance support under MEIS to 5%

Council for Leather Exports (CLE) is the apex trade promotion organisation of the Indian leather industry. Of late, this industry body has taken up several initiatives to bolster exports of leather products from the country. The Dollar Business caught up with M. Rafeeque Ahmed, Chairman, CLE, to understand what the Council is doing to give up a leg up to the industry in overseas markets.

Ahmad shariq Khan | September 2016 Issue | The Dollar Business

TDB: What, according to you, are the challenges that leather exporters face?

M. Rafeeque Ahmed (MRA): Generally, the biggest challenge for us and our members is penetrating the new and potential markets. Today, European Union and United States together account for about 68% of exports from the Indian leather industry. Of course, we have succeeded in our market diversification efforts to some extent with penetration in markets like Russia, Japan, Canada, Australia, Korea, UAE, Saudi Arabia, South Africa, etc. However, our share in these markets is still less than 2%. Council for Leather Exports (CLE) has been aggressively marketing in most of these potential markets and our efforts will definitely show results in the long run.

TDB: Are you happy with the export incentives currently provided to your sector? Also, how do you see the existing duty structure and tax deductions available to the sector?

MRA: The government, over the years, has put in a lot of efforts when it comes to sustainable development of the leather industry. In fact, the transformation of this industry from a mere exporter of raw hides and skins in the 1950s and 1960s to a leading value-added products exporter can be attributed to the continuous short-term and long-term programmes of the government.

The government has now included leather industry as a focus sector under the ‘Make in India’ programme and is concentrating hard on attracting investments. I am happy to say that the Indian Leather Development Programme (ILDP), which is being implemented under the 12th Five Year Plan, has helped in capacity modernisation and expansion. As regards to additional support measures, we have recently presented a development plan to the Department of Industrial Policy and Promotion wherein we have sought support measures for branding, construction of workmen dormitories, removal of ceiling of Rs.2 crore grant under IDLS and inclusion of land and building cost under Integrated Development of Leather Sector (IDLS) scheme. We have also sought a nod for import of second-hand machinery under IDLS and EPCG schemes, implementation of  Technology Mission and large collection of raw hides and skins.

Technologies for capacity utilisation of tanneries, up-gradation of common effluent treatment plants (CETPs) with latest technologies, developing a framework for quality benchmarking and certification, and providing support for establishing bonded warehouses with refrigeration facilities for storage of imported leathers, etc., are some of our other demands. Further, we have also requested the government to enhance the support measure under Merchandise Exports from India Scheme (MEIS) from existing 3% to 5%.

TDB: As the representative body of the leather industry, are you pitching for any free trade agreement and any other agreement with any country? If yes, how is it going to impact the industry?

MRA: From the leather industry’s point of view, I must admit that India still does not have FTAs with the two largest global markets namely European Union and USA. We, all, must appreciate the fact that the Indian leather industry has been able to substantially improve its exports to countries like Japan, Korea, Chile, ASEAN, etc., with which India has free trade agreements.

Exports of leather products to Japan has increased from $17.19 million in FY2010 to $56.21 million in FY2015, an increase of 226% in five years. Not only this, value-added leather products and footwears (products other than finished leather) constitute about 89% of these exports. This is due to lower import duties offered by Japan to Indian leather exporters under Indo-Japan Comprehensive Economic Partnership Agreement (CEPA). Having said that, Japan has still placed most footwears at a high duty range. Hence, we must negotiate for zero duty access for leather goods and footwears in Japan under reciprocal duty concession by India.

The interesting aspect is that we have also been able to penetrate a market like China to some extent. China is offering import duty concessions to India for certain finished leather, leather goods and footwears under Asia-Pacific Trade Agreement (APTA). In fact, our exports to China has increased from $48.57 million in FY2015 to $196.34 million in FY2015. Though finished leather is the major item of export to China, exports of leather footwears and leather goods have also picked-up in recent years.

Besides, India’s exports of leather, leather products and footwears to ASEAN countries have been showing an increasing trend for quite some time now.

TDB: You mean to say FTAs are good?

MRA: On the whole, when we look at the benefits of present trade agreements that India has entered into, we can say that they have reduced our dependence on European market to some extent. The Indian leather industry’s export to European Union, which was about 67% a decade ago, has now come down to about 56%. This is due our increased penetration in other emerging markets.

Though we get duty concessions on account of FTA, factors like absence of direct shipping lines, relatively poor road and port infrastructure, etc., are affecting our price competitiveness. The government must adopt a holistic approach to enhance exports to potential markets.

We must also look at the rapid changes that are taking place in the global trade today. The Trans-Pacific Partnership Agreement (TPP), involving USA and 11 other countries, will provide zero duty market access to many countries in one of the world’s largest market i.e. USA. Indian leather industry’s competitors, particularly Vietnam, are going to make the most of it. Similarly, the Trans-Atlantic Partnership Agreement between USA and European Union will open the doors of US market to our East European competitors like Romania, Poland, Slovakia, Estonia, etc. Hence, from the leather industry’s point of view, India must soon conclude the Trade and Investment Agreement with EU which will provide zero duty access to Indian leather industry in this vast market. Besides, we should also explore ways to conclude FTA with USA to further penetrate this important and big market.

TDB: Do you think India is being promoted well as a reliable source of leather goods? What steps should be taken in order to give up a leg up to the industry in overseas markets?

MRA: The image of Indian leather industry as a reliable source of high-quality goods is definitely being promoted in major and potential markets, through sustained marketing programmes initiated by CLE. In recent times, the Council has organised ‘Make in India’ Investment Promotion shows in five countries, Germany, Brazil, United States, China and Italy, highlighting investment opportunities in the Indian leather sector.

The government is supporting these initiatives through financial assistance provided under Marketing Development Assistance (MDA) and Market Access Initiative (MAI) schemes. However, we have requested the government to provide some relaxation in these schemes. For instance, the government should do away with the condition of 10 minimum participants under MDA and 40 under MAI. Instead, the government should relax this minimum participants condition to five members for MDA events and 20 members for MAI events. This will enable us to organise more promotional events in potential markets, as it is difficult to get large-scale participation from exporters in these markets.

TDB: How does your Council ensure that the products exported by the members match global standards?

MRA: Indian exporters are already adhering to various statutory requirements of international markets. These include REACH regulation of European Union (which restricts usage of certain chemicals in products), Consumer Safety Product Improvement Act (CPSIA) of USA that regulates specific substances in children’s products. Besides, tanneries are also going in for LWG (Leather Working Group) audit.

Regarding product standards, Indian products are definitely meeting buyers’ requirements. In fact, many Indian exporters are now creating designs for global markets rather than just following designs demanded by buyers.