Mega package of Rs 2,600 cr for leather sector may be announced soon

Proposal may be sent to Cabinet by commerce ministry within two weeks

A package for the leather sector worth Rs 2,600 crore may be announced by the government soon in a move aimed at increasing employment and investments in the sector.

After being pushed back twice earlier, the proposal might now be sent to the Cabinet within the next two weeks by the Commerce and Industry Ministry, senior government officials and sources in the know from the private sector told Business Standard.

The comprehensive package includes both tax and non-tax incentives for the leather sector, specifically targeted at the segment of small and medium scale units within the industry.

"We have been talking to the government for a long time over the issue. We expect it to be made public over the next two weeks," Mukhtarul Amin, chairman and managing director of Superhouse group and chairman of the Council for Leather Exports, told Business Standard.

The package was initially mooted by the Commerce and Industry Ministry last year after representations from major players in the sector brought up demands for a package along the lines of the textile package announced by the government in June 2016. It has already once been approved by the expenditure finance committee and a draft Cabinet note has been circulated to different ministries for their views. 

"We are done with stakeholder consultations and are now looking at specific issues raised by other ministries," a senior government official also confirmed to Business Standard.

The beleaguered leather sector had suffered double disruptions in the supply chain, after the government’s demonetisation drive as well as over the introduction of the goods and service tax. Subsequently, transactions were almost solely based on cash. Across the country, there have been reports of a steep decline in production from leather units situated in clusters such as Kanpur, Noida, Kolkata and Tirupur.

The largest among these is Kanpur, accounting for more than 16 per cent of India's leather and leather product exports. According to industry estimates, revenues are expected to be hit by up to 20 per cent.

Industry experts pointed out that the package would be urgently required by the sector which had a large percentage of SME units. India is the second largest producer of footwear and leather garments in the world, a significant proportion of which is exported. 

However, exports of leather goods have declined from $2.38 billion in 2015-16 to $2.34 billion in 2016-17.

Earlier this month, Minister of State for Commerce and Industry C R Chaudhary mentioned that leather exports and production were expected to rise 10 per cent by 2019. The recent decline in leather exports was mainly due to sluggish demand in the European Union and not because of a ban on sale of cattle for slaughter and cases of cow vigilantism in the country, he said.

The package has also proposed tax incentives for the existing Indian Footwear, Leather, and Accessories Development Programme’ (ILDP) under the Department of Industrial Policy and Promotion. Total expenditure during the 12th Five Year Plan period (2012 -2017) stands at Rs 1,145 crore. This includes six sub-schemes in the areas of human resource development, support to artisans and the establishment of mega leather clusters.

While there have been strong indications over the past two years that the government may increase budgetary support to the ILDP, it has not happened till now.

KEY TAKEAWAYS

• Along the lines of the textile package announced earlier, it will focus on increasing employment and investments in the sector

• India, the 2nd largest manufacturer of leather footwear and garments in the world, has suffered stagnating exports over the years

• Successive Economic Surveys have pointed out the need to increase manufacturing in the labour intensive leather sector

• However, GST and demonetisation have reportedly taken the wind out of the sector, with many units being in the SME category