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| Tamil Nadu leather exporters expect to bounce back |
| T E Narasimhan / Chennai Apr 21, 2009, 00:34 IST |
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The recent winter in Europe has brought good news to small and medium enterprises (SMEs) in the traditional leather clusters of Tamil Nadu. Representatives from these clusters in Chennai, Ranipet and Ambur said they had earlier expected the global economic downturn to reduce orders by 30-40 per cent, but now believe they would be down by a “more manageable” 15-20 per cent, owing to a severe and prolonged winter.
They told Business Standard, “the bad times are over and the industry will bounce back.”
While nature is helping these units to bounce back from the recession, man-made factors such as lack of credit and power cuts are posing big challenges.
Tamil Nadu is one of the largest centres of the Indian leather industry. According to Council for Leather Exports data leather exports from the state increased to Rs 5,385.30 crore in 2007-08, from Rs 5,277.24 crore in 2006-07. The state’s share in India’s leather exports was 36.11 per cent in 2007-08. The industry employs around 3 lakh people in the state.
According to the council around 90 medium units, 451 small units and 48 micro units are registered with it in Tamil Nadu. The main business of these units is to take up outsourced jobs, including tanning and manufacturing leather shoe uppers. SMEs control 50-60 per cent of the state’s Rs 5,400 crore tanning industry. The finished leather segment, estimated at around Rs 1,000 crore, is 70 per cent controlled by SMEs.
H E Farooq Ahmed, executive director of the South India Shoe Manufacturers Association, said, “The bad times are over in terms of orders. Now the biggest challenge is to execute the orders.”
M Rafeeque Ahmed, chairman and managing director of the Farida Group and president of the All India Skin and Hide Tanners and Merchants Association, says that the global slowdown had triggered initial order cuts of 15-20 per cent that later went up to 30-40 per cent. As a result, he noted, 30-40 factories in the state had closed down over the last six to seven months. Job losses in Ranipet alone amounted to 10,000-15,000, according to industry sources.
But the just concluded winter in Europe (units operating in these clusters cater mainly to European markets) was both severe and long, added S Srinivasan, who exports leather shoe uppers to Germany. As a result, he said, his company’s current capacity utilisation is 100 per cent.
Most tanneries, where capacity utilisation had come down from 80 per cent in November 2008 to 30-40 per cent more recently, are planning to increase it to 50-60 per cent.
However, SMEs still complain about power cuts and lack of access to credit, which threaten to jeopardise both productivity and quality.
Last year the state government imposed a 40 per cent power cut on high tension (HT) industrial units and commercial establishments, and a 20 per cent cut on low-tension (LT) users, coupled with peak hour restrictions. Power outages are routine.
Power costs have trebled-- firms that were paying Rs 4 per unit for power earlier are now paying Rs 12 per unit. This erodes profitability and, even more, quality, which is the key to retaining customers, exporters say. Moreover, customers want discounts of 10-15 per cent, and exporters say that, in order to retain them, they are forced to agree.
The other major problem, according to Ahmed, is that banks are reluctant to lend and have placed SMEs in the ‘high-risk’ category. Banks which were lending money to these units are now asking for substantial collateral. “The flow of credit has almost stopped,” said Ahmed, who has submitted a representation to the Union Commerce Ministry and urged the Reserve Bank of India to monitor credit flows.
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