The fast-rising rupee, vis-a-vis the US dollar, had hurt the $4 billion Indian leather industry, as currencies of competing countries, especially China, that made slower gains against the dollar, and in some cases have even declined.
A cross section of industry representatives from the two major leather clusters — Tamil Nadu and Lucknow — told Business Standard, “The strength of the rupee has eroded profitability and has weakened the industry.”
V P Naimur Rahman, president, Indian Finished Leather Manufactures and Exporters Association (IFLMEA) said the industry had been under “tremendous” pressure due to the economic slowdown in Europe and the US which resulted in a drop in the order book and poor capacity utilisation. Adding to this, the appreciation of the Rupee hurt.
“There is no certainty of further strengthening of the rupee. If the RBI intervenes, it will stabilise. We are unable to take a call,” he added.
Agrees, D C Pandey, general manager - finance, Mirza International, adding profit margins were squeezed and the industry had not recovered. “It is impractical to reduce the profit margins further and we would prefer to pass on the cost to customers.
Companies like A V Thomas Leather and Allied said there is no question of passing on the burden to customers who are already asking for a reduction in the price, said Habib Hussain, the company’s CEO.
Under this situation the government should lend its hand to the industry by increasing the stimulus, which presently around Rs 100 crore and is not enough, said Hussain. The government should also look at bringing down interest rates, duty drawbacks and more liberal policy.
Rahman noted that in China, the main competitor of the Indian leather industry, the government has increased subsidy from 8 per cent to 13 per cent, maintaining the currency levels. This has helped China to offer a competitive price.
The industry should step up its creativity levels and needs to be competitive. Hussain noted that during recession, the Indian leather garment industry reported a positive growth and this is mainly due to the creativity and the various offerings of the products.
M Rafeeque Ahmed, chairman of the Council for Leather Exports, said, “We did not expect this in such a short while, that too when the sales starting Summer 2010, we cannot go back to the customers and say we want to revise the prices.”
Asked about hedging, some industry representatives have said they had some unpleasant experience by hedging and they avoided this.
Mukhtar-ul-Amin, president, Council of Leather Exports (CLE) added most exporters are in Small and Medium Enterprise (SMEs) and they cannot afford to hedge due to various shortcomings. He added, more export volumes should be allowed to hedge against currency fluctuations rather than the present ceiling of 33 per cent.
About 15 per cent of our export is import and hence to that extent there is natural hedging.