Leather Industry: Leaving a footprint

INDUSTRY IMPACT: 2005

The leather industry in and around Ranipet, Ambur and Chennai is in an upbeat mood. Footwear units make up a key part of the leather industry in these areas. The units and their raw material suppliers -- tanning units -- in Tamil Nadu have begun to witness an uptrend in the wake of India's growing importance in the global leather footwear trade.

The prospects of leather footwear began to witness a noticeable improvement last year with 2005 confirming that it isn't a temporary phenomenon, but a sustainable trend.

FOREIGN INVESTMENT AS AN INDICATOR

A handy indicator of the business prospects of leather footwear manufacture in Tamil Nadu is the growing interest shown by foreign entities to shift manufacturing here. The interest of two foreign entities convey a sense of the trend.

Last year, Chennai-based leather footwear manufacturer Forward Group tied up with Italy's Conceria Virginia to establish a tannery that would service the growing local footwear manufacturing capacity. Italy is a leading centre in the manufacture of leather products.

Though the venture was not the first instance of foreign investment in manufacturing, the Italians last year signalled that they had been compelled by the logic of the need for raw material suppliers' proximity to downstream units that would most likely generate a lot of future demand.

This year, Taiwanese footwear manufacturer, Apache, has entered into negotiations with the state government to set up a footwear manufacturing unit (non-leather shoes) in Sriperumbudur. Apache has asked for its unit to be declared a special economic zone (SEZ).

FOOTWEAR'S IMPORTANCE & TAMIL NADU'S ADVANTAGE

Over the last couple of years, footwear has emerged as the driver of growth in the leather industry. The segment (refer table) is not only the biggest in India's leather exports, it is also the fastest growing.

The commerce ministry's Council for Leather Exports (CLE) has forecast that India's leather footwear exports would rise from $856 million in 2004-05 to $2.5 billion by 2010, an annual growth rate of about 17 per cent.

Tamil Nadu has been a key contributor to India's footwear exports, and is likely to be the major beneficiary of CLE's forecast.

According to CLE, there are 70 leather footwear units in Tamil Nadu that generated an export business of Rs 1,194 crore in 2004-05. Tamil Nadu-based units contributed over 40 per cent to Indian footwear exports.

CAUSES FOR THE BOOM

Some leather footwear manufacturers traced the change in the fortunes of Indian footwear exports to early 2003, when travel to China was negatively impacted by the outbreak of SARS.

China is one of the biggest players in the leather trade. Travel restrictions to China made US buyers (US footwear imports made up about 50 per cent of the trade in footwear) to look for alternative sources of supply, said industry hands.

By the end of 2003, the first signs had begun to emerge that India was considered a credible alternative. Wal-Mart, for instance, had begun dealing with footwear manufacturers in Tamil Nadu, among other places.

A few weeks ago, a US delegation under the umbrella of American Apparel and Footwear Association (AAFA) visited India to closely examine the possibility of sourcing footwear from here. Fawn Evenson, vice- president of AAFA, told a media conference then that an ongoing European Union anti-dumping investigation into China's footwear industry could trigger greater American interest in India as a supply point.

INFRASTRUCTURE READY IN TAMIL NADU

Even as seemingly random events have created favourable conditions for the Indian industry, infrastructure enhancement has started.

Tamil Nadu is a natural location for some of the central government-sponsored infrastructure developments as it is home to a key segment of the leather industry.

A leather footwear complex and two footwear component parks near Chennai are under development. They are expected to act as the hub for manufacturing in the region.

The leather industry has had to grapple with environmental issues and the consequent hostility in the past. As part of the infrastructure development, the industry, along with government support, has tried to neutralise the problems caused by discharge of effluents.

The CLE said that in certain parts of Tamil Nadu, leather clusters have begun to move towards zero discharge concept. A Rs 67-crore project to develop leather industry's infrastructure in the Ambur-Vaniyambadi belt has made environmental protection measures as an integral part of the project.

The incremental national infrastructure for the leather industry is being built through a combination of government and industry financing. On the central government's side, about Rs 400 crore has been approved under different heads for infrastructure.

The leather industry has expected an investment inflow of about Rs 1,200 crore over the next few years to supplement the government's commitment.

IN THE NUTSHELL

The improved prospects for the leather industry is expected to lead to a significant trickle down of economic benefits because of the labour-intensive nature of the industry.