The domestic leather industry has rued the proposal to impose a sharp export duty cut on raw leather and hide from 60 per cent to 40 per cent in the Union Budget 2019 tabled in Parliament last week. Fifteen per cent export duty on EI (Eastern India) tanned leather was also abolished on July 5. At present, the share of these items is not big in the leather export basket, but an increase in their export after budget incentives is expected to create a supply crunch.
Industry players, including leather goods manufacturers and tanneries, are apprehensive the cut proposal would create acute raw material squeeze in the domestic market and ultimately lead to uncompetitive pricing of Indian finished products in the global arena.
Currently, the share of raw hide and leather skin in India’s net leather and leather goods exports, which stood at more than $5.3 billion in 2018-19, is almost negligible due to higher export duty and robust domestic demand. However, leather industry is apprehensive the incentive to raw hide shipments would benefit organised slaughterhouses, but in turn hit leather sector by narrowing down the supply pool.
Council for Leather Exports (CLE) Northern Region chairman and leading Agra-based leather footwear exporter, Puran Dawar, said the export duty cut on hide would adversely affect the leather value chain right from tanning to finished goods, especially at a time when finished leather exports were already down.
“If leather goods industry does not get raw material, how will it survive and proliferate. Every country preserves its raw material resources, especially in sectors, which are competitive, organised and growing, such as leather in India. Yet, the finance ministry has proposed the export duty cut on hide, which defies logic,” he told Business Standard.
The Budget has also proposed to abolish 15% export duty on EI (Eastern India) tanned leather. EI leather is vegetable tanned leather produced by tanneries in some Tamil Nadu regions. In 2008, EI leather was also accorded intellectual property protection under the Geographical Indication (GI) Act. It is exported to some European countries, such as Italy for making shoe upper after processing.
“There is even the possibility of duty free export of finished leather from India under the garb of EI leather, which would further narrow down raw material availability,” he warned.
Dawar claimed some slaughter houses, especially based in South India, had long been pursuing the agenda of export duty cut on hide and EI leather, although industry in general had been rallying against it and even apprised the commerce ministry of its stance.
CLE Central Region chairman Javed Iqbal noted the export duty had been kept higher at 60% to discourse hide exports and ensure ready supply of raw material to industry. “The export duty cut is bad for all stakeholders in the leather value chain, including customers. Of late, there has actually been shortage of raw hide domestically and if the Budget proposals are passed, it would further create shortage and pull down production index,” he claimed.
According to Small Tanners’ Association member Nayyar Jamal, the export duty cut would also cast a death knell for tanneries as raw hide was their prime raw material.
“At a time, when our biggest competitor Bangladesh does not allow raw hide shipments and instead provides 20% export duty drawback on finished leather goods, India has proposed to promote hide exports and create a shortage for domestic industry,” he lamented.
He claimed Kanpur leather cluster would be the hardest hit by the Budget proposals. The nearly Rs 12,000 crore Kanpur leather industry has already been facing a crisis owing to the continued closure of more than 200 leather tanneries over the past several months over environmental issues, while some units are already mulling to shift to West Bengal.