The Indian Leather Industry – Prospects in Domestic Market

Indian Retail Industry is 5th largest in the world and is expected to grow by 25-30% every year.

Number of malls in India rose from 190 in 2010 to 280 in 2011-12

Domestic market for leather products and footwear projected to increase from the present value of USD 3500 million to USD 7000 million in next 5 years

INDIAN

LEATHER

INDUSTRY -

STRIDING

WITH

CONFIDENCE

Council for Leather Exports India

Council for Leather Exports(Sponsored by Ministry of Commerce & Industry, Govt. of India)

3rd Floor, CMDA Tower - II, Gandhi Irwin Bridge Road, Egmore, Chennai - 600 008.Tel: +91- 44- 28594367 Fax: +91- 44- 28594363/64. E-Mail: cle@cleindia.com

Website : www.leatherindia.org

The Indian Retail industry

The Indian retail industry is the fifth largest in the world. Compris-

ing of organized and unorganized sectors, Indian retail industry is one of the fastest growing industries in India, especially over the last few years.

Though initially, the retail industry in India was mostly unorganized, however with the change of tastes and preferences of the consumers, the industry is getting more popular these days and getting organized as well. With growing market demand, the industry is expected to grow at a pace of 25-30% annually.

It is expected that by 2016 modern retail industry in India will be worth US$ 175- 200 billion.

The Indian retail sector will continue to expand at a fast clip, with the number of malls in the country estimated at 280 in 2011-12 from the level of 190 during 2010. India has added around 5 million sq ft of retail space in 2010 and approximately 15 million sq ft of space is lined up to get operational in 2011-2012.

Increasing Domestic Market for leather products and footwear

The domestic market for leather and leath-er products in India is about US $ 3500 mil-lion. However, the economic growth of India and the growing affluence of consumers will lead to the significant growth of the domestic market in India for value added leather prod-ucts and footwear and the domestic market for these products are likely to double in the next five years. Thus there is immense scope for selling value added leather products and footwear in India.

Increasing Presence of Brands in Domes-tic Market

Considering the huge domestic market in India for value added leather products and footwear, many overseas brands have estab-lished their presence in India. Aldo, Bally, Clarks, Ecco, Florshiem, Ferragammo, Hush Puppies, Lee cooper, Lloyd, Marks & Spen-cer, Nike, Nine West, New Balance, Reebok, Rockport, Stacy Adams, Tod’s, Geox, Louis Vuitton are some of the global brands which are sold in India.

Besides, many Indian Brands like Red Tape, Bata, Liberty, Khadims, Lakhani, Metro, Action etc., are also popular in the retail market.

Favourable Government Policy

The entire leather sector is now de-licensed and de-reserved, paving way for expansion on modern lines with state-of-the-art machinery and equipment. 100% Foreign Direct Invest-ment (FDI) and Joint Ventures is already per-mitted through the automatic route for setting up units in India. Also, 100% FDI is permitted in single brand retailing. 100% repatriation of profit and dividends is allowed if investment made in convertible foreign currency. Thus, India is a favourable destination not only for sourcing Leather & Leather Products but also for selling value-added Leather Products to the domestic market

100% Foreign Direct Investment is allowed in the leather industry and 100% FDI is also allowed in Single

Brand Retailing

Besides the above, countries like Bangladesh & Sri Lanka offers vast market opportunities for Indian Footwear Components & Accessories sector in view of the increasing production base for footwear & leather goods in these Asian Countries.

Opportunity for Indian Leather Sector

The decreasing production base in devel-oped countries and price competitiveness of Indian Leather Industry has made the buying community to increasingly look at India as an alternate sourcing option.

Besides, several overseas manufacturers are looking for technical collaborations and joint ventures in India, in view of the significant export prospects and the growing domestic market in the India.

Worldwide, the demand for leather and leather products is on the increase with global imports increasing from USD 77 billion in 2000 to USD 138 billion in 2010. Growing at a rate of 6% per annum, the global trade is projected to rise to a staggering USD 245 billion in 2020. Hence India has vast scope to achieve a greater share in global leather trade in next 5 years.

Thus Indian leather industry’s export would more than double in the coming five years with tremendous opportunities for additional employment generation in Indian leather sector as well as allied industries. Besides, the domes-tic market is also expected to double in the next 5 years. All these present immense opportunity not only for the domestic players but for over-seas manufacturers as well for overall growth and development.

The Indian Leather Industry – History and Growth

Indian Leather Industry has grown from a mere supplier of raw materials to a reliable source of high quality leather products and footwear.

Provides Employment to 2.5 million people, mostly to economically weaker sections.

Is the Second Largest Producer of Footwear & Leather Garments and Fifth Largest Exporter of Leather Goods & Accessories.

Has a strong Tanning base and meets 10% of global requirement of Leather

The impressive growth of the Indian leather sector over the past four

decades makes for fascinating reading during which the industry has grown from a mere cot-tage industry to a thrust Industry earning valu-able foreign exchange for the country and from a mere exporter of raw hides & skins and leath-ers, to a reliable supplier of high quality leather products and footwear.

The major transformation of the industry happened during the 1980s and 1990s when many manufacturing units of value added prod-ucts came-up. The economic liberalization pro-gramme implemented in 1991, the de-reserva-tion process of the leather industry which was initiated in phases from 2001, allowing 100% FDI through automatic route, the enactment of Micro, Small and Medium Enterprises Develop-ment Act in 2006 and the major policy initia-tives announced in the Foreign Trade Policy and Indian Leather Development Programme (ILDP), have all played a crucial role in the development of the industry.

The Indian Leather Industry has now become a right destination for not only sourcing but also for Joint Ventures/Technical Collaborations due to the pro-active efforts of the Government of India.

The Indian Leather Industry has many strengths and achievements to its credit. The major ones are :

• TheIndianLeatherIndustryisamongthetopten foreign exchange earners for the coun-try and hence holds a prominent place in the Indian economy.

• The leather industry is an employment inten-sive sector, providing job to about 2.5 million people, mostly from the weaker sections of the society. Women employment is predominant in leather products sector with about 30% share.

• WithIndiaendowedwith21%ofworldcattle& buffalo and 11% of world goat & sheep population, the Indian leather industry is bestowed with an affluence of raw materials.

• Indiahasaverystrongtanningbase.Tradi-tional knowhow combined with application

of modern tanning techniques have made the Indian tanning industry earn an important place in the global leather market. The Indian Tanning Industry, which produces 2 billion sq.ft. of leather annually, meets about 10% of the global requirement of leather.

• Indiaisthesecondlargestfootwearproducerafter China, having an annual Production of 2065 million pairs. There is a huge domestic retail market in India for footwear and hence 1950 million pairs produced by India consti-tuting 95% production, are sold in domes-tic market. On the export front, footwear accounts for 45.05% share in Indian Leather sector’s total exports, with men’s footwear being the major item of export. Nevertheless, export of Ladies and Children footwear from India has witnessed significant growth in the recent years. During 1998-99, the export of gents, ladies and children footwear had a share of 71%, 27% and 3% respectively which has now changed to 52%, 38% and 9% respectively which shows that Indian footwear industry will concentrate more on these two segments in the coming years.

• Indian Leather Garments industry is thesecond largest producer with an annual pro-duction capacity of 16 million pieces and is also the third largest global exporter.

• India is the fifth largest global exporter ofLeather Goods & Accessories including Saddlery & Harness with an annual produc-tion capacity of 63 million pieces of leather articles, 52 million pairs of Industrial gloves & 12.50 million pieces of Harness & Saddlery items. These items accounts for 23.44% share of India’s total export.

• Renowned institutions like Central LeatherResearch Institute (CLRI), Footwear Design and Development Institute (FDDI), National Institute of Fashion Technology (NIFT), Central Footwear Training Institute (CFTI) provide the required technical support & consultancy ser-vices to the industry in areas of Environment Management, Product Design And Develop-ment, Human Resources Development etc

The Indian Leather Industry – Export Performance and prospects

Ever since implementation of eco-nomic liberalization programme

in 1991, the Indian leather industry has wit-nessed significant growth, with exports increas-ing from US $ 1418.78 million in 1990-91 to an all time high value US $ 3844.86 million in 2010-11. Value added leather products and footwear now constitute about 80% of exports from the Indian Leather Sector. The Indian Leather Sector currently exports to about 70 countries.

Indian Leather Industry – Share of different product segments in export

Leather Footwear with a share 37.98% was the major item of export from the Indian leather industry. The share of other product segements are Leather Goods (21.19%), Fin-ished Leather (21.09%), Leather Garments (10.43%), Footwear Components (5.59%), Saddlery & Harness (2.24%) and Non-Leath-er Footwear (1.47%).

Emphasis on bilateral and multilateral co-operation

While the WTO regime which favours open, equitable, predictable, non-discriminatory and rule-based multilateral trading regime has opened-up new markets for the Indian Leather Industry, the initiatives of Government of India in promot-ing bi-lateral and multi-lateral trade through trade agreements have also benefitted the industry. So far, Govt. of India has concluded a number of Free Trade Agreements and Preferential Trade Agree-ments. These agreements will provide greater market access to Indian exporters in regions like ASEAN, Japan, Korea etc., besides SAARC countries. Further, negotiations are going-on for trade agreement with European Union.

Product and Market Diversification Strategy

The objective of the Indian leather industry is to go-in for product and market diversification strate-gies so as to further increase its share in the global market. As part of this, efforts have been taken to increase export of ladies and children footwear and also non-leather footwear in the footwear segment and go in for design and fashion oriented innova-tive products in the other segments.

Similarly, even while consolidating and expand-ing presence in the traditional markets of Europe and USA, the Indian leather industry is looking to penetrate potential markets like Japan, Russia, Canada, Australia, New Zealand, Brazil etc,.

n 21.09% Finished Leather

n 37.98 Leather Footwear

n 21.19% Leather Goods

n 10.43% Leather Garments

n 5.59% Footwear Components

n 2.24% Saddlery & Harness

n 1.47% Non-Leather Footwear

% Share of Product Segments