In a bid to capture a larger share in the leather industry, India needs to create an eco-system to bring in global players by giving attractive Plug-n-Play Model (PPM) business opportunities and rationalising GST charges among others, said R Selvam, IAS (Mason Fellow, HKS), executive director in the Council for Leather Exports.
India is the second largest global producer of footwear with 2.6 billion pairs/year in 2019, whereas China ranks first with 13.47 billion pairs. Out of its total production, India exports only 286 million pairs with a value of $ 2.5 billion, and ranks 10th globally in value terms. Around 75 per cent of India’s global exports comprise leather footwear.
Selvam noted, the share of leather footwear in global exports dropped from 55% in 2010 to 39% in 2019, while that of non-leather footwear has increased from 14% to 33% during the same period (in value terms).
According to him, India also needs an additional 2.4 billion pairs domestically in the next four years. Therefore India needs diversification in production of non-leather (athleisure shoes) and in textile footwear and scaling-up of production, besides greater market penetration in leather footwear.
Out of the global imports of around $199 billion of leather, leather products and footwear during 2019, the highest exports were from China (around $53.20 billion) while India’s export share is below 3%, with $5.42 billion. In contrast, India is endowed with the highest global cattle population of 576 million, which supplies 13 % of the world’s raw materials to the leather industry.
The growth of non-leather footwear sector is phenomenal in countries like Vietnam, Bangladesh, and Cambodia. According to the Vietnam Leather, Footwear and Handbag Association (LEFASO), the country exported footwear and leather exports worth $22 billion in 2019. Besides, investments are rising in the footwear sector in Vietnam, with China focusing only on hi-tech industries, said Selvam.
India has attracted only $215.11 million as foreign investment through the automatic route since 2000. India still imports 246 million pairs of footwear valued at $ 0.72 billion footwear and imports more than 90% of its machinery for tanneries and accessories for the leather and footwear sector from Italy and China. The tanneries operate at sub-optimal levels and there has been a 7% increase in cost of production due to high import duties on components/materials and high freight charges.
The above demands FDI both in brown and green fields for the establishment of machinery’ & components’ industries, for scaling up of the existing leather industries and for diversification of its production into non-leather (PU/PVC/synthetic/Textile) footwear in India. Otherwise, these demands will be met by imports, he said.
The PPM acts as backbone for the global value chain integration. The global value chain is boosted by technological advancements, liberalisation of trade, reduction in trade cost and demand side factors. The cost includes transportation, ports, freight and insurance cost, tariffs, duties and cost associated with non-tariff measures, mark-ups of importers, wholesalers and retailers.
Post-liberalisation, India’s share in global merchandise trade increased three times, from 0.6% in 1991 to 1.7% in 2018. China’s share at 12.8% in 2018 is 7.5 times that of India due to global value chain integration. Stronger global value chain ensures faster development, industrialisation, access to investment, knowledge and technology transfer and brings cost efficiency, improved wage rate and working conditions and encourages small micro medium scale industries with an objective to build a self-reliant (Atmanirbhar) India.
Quoting TATA COFFEE, as an example, he said the coffee producer set up a manufacturing unit in Vietnam stated that its plant was established by promoter “Vietnam Singapore Industrial Park” using the “Plug and Play Model” and they got all the approvals under the single window system. These led to a continuous increase in labour productivity, competitiveness, sustainable development, enterprise management, and training with new industrial revolution policies. India also needs such industrial parks with "ready to move-in facilities".
Additionally, strategies like construction of roads, customs, ports, airports, power, telecommunication and the catch-up strategies skilling, export linkages and public procurement system act as catalysts for more investments. Also, Vietnam guarantees finance for micro, small and medium enterprises (MSMEs).
These measures helped Vietnam grow the leather and footwear sector from $13.38 billion to $23.44 billion from 2015 to 2018 at a CAGR of 20.55%. India also needs similar strategies. The Indian government has done exceptionally well in the skilling sector.
Selvam said, further rationalisation on GST charges at par with apparel can increase consumption, thereby creating additional employment opportunities for the underprivileged sections. Nearly 1000 pairs of footwear produced and sold in India can generate 425 jobs across the value chain right from manufacturing to retail. And inclusion of this sector in Production Linked Incentive (PLI) scheme will strengthen production.
The major bottlenecks in establishing PPM in India are the acquisition of land and provision of “ready to move in facilities”. Therefore under-utilised lands of many central/state public sector undertakings can be effectively developed into multi-sectoral/customized mega manufacturing clusters to surpass the current manufacturing sector contribution of 18 per cent to the GDP. State investment promotion bodies like TIDCO (Tamil Nadu Industrial Development Corporation) should be linked in the process to boost investors’ confidence.