Coveting popular attention isn’t always about a vanity play. Not in the business of leather exports. Despite a slowdown in the global economy, leather exports from India have surged in recent times. And at the forefront of this revolution is R. Ramesh Kumar, Executive Director, Council for Leather Exports (CLE). In conversation with The Dollar Business, Ramesh Kumar dwells in depth about factors that enabled the leather industry to weather storms in the last five years

Jayashankar Menon | @TheDollarBiz 

TDB: How would you summarise India’s exports of leather in the last fiscal? Which product categories gave an impetus to exports?

RK: The industry achieved an all-time high export value of $6 billion in FY2014 – a growth of about 17.6% as compared to the previous year. This has been achieved despite several challenges, particularly high cost of essential raw materials and intense competition in the global market. In fact, all product segments, except leather garments, achieved an export growth rate of more than 13% in FY2014. In case of leather garments, the growth was comparatively lower at 5.37%, which can be attributed to competition from the emergence of alternate synthetic and PU (Polyurethane) garments. However, the leather garment segment has now adopted combination garments, i.e., garments made of leather in combination with synthetic/textile items. This is in tune with market requirements and we are hopeful that exports will get a boost in FY2015.

TDB: Growth of leather exports from India, in volume terms, has been erratic over the last five years. What do you think has been the reason?

RK: As far as exports growth in quantity terms is concerned, one has to look into the adverse impact caused by the global economic recession of 2008-09, which significantly reduced the demand for leather products and footwear. This might be one reason for uneven growth rates in quantity terms.

TDB: What kind of margins are available to those who export leather skins and hides as compared to those who export leather goods?

RK: It’s difficult to figure out the margins for exporters of hides, skins and leather as well as those for value-added products as they depend on many factors. In the case of hides, skins and leather, we have to look into the type of hides or skins, i.e., whether they are raw, semi-processed or finished. Similarly, the price will differ depending on the origin of the skin/hide. In case of value-added products, margins depend on whether the product is in the lower range, middle range or is supplied to the higher end of the market.

TDB: Hong Kong is the top destination for Indian leather but it doesn’t figure anywhere when it comes to leather goods. Is it a function of demand or are we losing out to competition?

RK: Competition is a major factor. Hence, we are also looking at other potential markets in the Asia-Oceania region including Japan, Australia and New Zealand for enhancing our exports. Indian exporters are regularly participating in leather exhibitions (Asia Pacific Leather Fair) organised in Hong Kong. Besides, we had recently organised the visit of one delegation to Australia and New Zealand to tap into those markets. We are also planning to send delegations to countries like Vietnam and South Korea to discover new possibilities.

TDB: Indian leather goods are mostly exported to Europe and USA. Who, according to you, are our main competitors and what is India’s share in the total imports by these two markets?

RK: About 75% of India’s export of leather and leather products is directed to Europe and USA. Our main competitors in these two major markets are China, Vietnam, Pakistan (particularly for leather garments), Bangladesh (when it comes to footwear), Thailand, and Cambodia. While our market share in Europe is about 4.5%, in USA it is about 1.4%. Hence, there is a lot of scope for further increasing our market share even in these traditional markets.

TDB: What kind of incentives do you think are being provided by governments of such competing nations that are exporting to USA and Europe?

RK: The governments of competing countries must be providing export incentives. Bangladesh, for example, benefits from the status of “Least Developed Country” because of which it enjoys zero import duty or higher concessional duties. Similarly, it is learnt that the European Union has offered Generalised Scheme of Preferences (GSP) and other benefits to Pakistan, on account of which it might be having an edge.

TDB: Asian countries still don’t figure among the top destinations for Indian leather and leather goods. Is it an untapped market or is demand in these countries generally low?

RK: We are looking at countries like Japan, South Korea as well as the Middle East as future markets for Indian leather products and footwear. We hope that the Indian leather industry is able to considerably increase its market share in these countries in the coming years.

TDB: Excise duty on machinery and equipment that the leather industry uses was cut in the last Budget. How has it helped the margins of leather goods manufacturers? Do you expect these measures to be extended further in this year’s Budget?

RK: The extension of the excise duty reduction will definitely help modernisation of the leather industry and in turn boost exports. We hope the government extends it.

TDB: What kind of a growth can we expect if the government gives its nod to your other demands like enhancement of duty credit and implementation of 3% interest rate subvention scheme?

RK: The industry is targeting 20% export growth this year. If the government gives a go-ahead to our demands, exports will definitely get a further boost.