Growth in leather export units likely to halt due to slowdown in Europe

20 Sep 2011 Evaluate

The growth of Indian leather export units is likely to halt this year on the back of impulsive economic conditions in the European markets and the sharp increase in raw material and input prices, which has already eroded margins by 50 percent. The leather export units in India are primarily dominated by small and medium enterprises (SMEs).

According to the chairman of the Council of Leather Exports (CLE), ‘export growth is likely to stall in the next six-month period due to volatile economic conditions in the US and European markets.’ With uncertain economic circumstances, the question of survival has become a priority for entrepreneurs, who are now looking at consolidation and aiming towards the domestic markets. But on the other hand, the industry is also expected to attain a size of $5.4 billion by 2014 from the current level of $3.8 billion.

About 80 percent of India’s leather exports are to the US and Europe. The main markets are Germany - 14 percent, UK - 13 percent, USA - 9 percent, Italy - 11.6 percent, France - 17 percent and Spain - 16.25 percent. At present the industry is witnessing 13-15 percent growth, which may slow down in the months ahead due to the crisis in western markets.

Besides the weakness in the western economies, there are two other major issues for the industry, the rise in the costs of inputs (power and labour). Raw material prices have gone up by 35-40 percent in the last 6-9 months, while power costs have gone up three times due to power cuts - both scheduled and unscheduled - in the state.

The other issue is the interest rate, which has gone up from 7 percent in March 2010 to 12.5 percent at present. Transaction costs too are 10-12 percent in India, against the global norm of five to six per cent. In order to address the high volatility in the export markets, units in these clusters have now started looking at consolidation. The manufacturers are also looking at launching their own brands to cater to the domestic market, which is largely catered for by industry in the North. Though the value is less, domestic market volumes are stable. In the next five years it is expected that the domestic market will gain its momentum.

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Growth in leather export units likely to halt due to slowdown in Europe

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