Rising rupee hurting leather exporters as competing countries benefit

Depreciation in currency of competing countries hurting players further

An appreciating rupee is bad news for the domestic leather industry, which has already seen a 50% drop in business owing to the Centre's ban on the sale and purchase of cattle for slaughter.

Exporters say the country has lost competitiveness to the extent of 10-15% in the past two years due to exchange rate alone. The industry is already dealing with a situation where there is no substantial increase in orders, month-on-month, due to an increase in competition, especially from Vietnam and Bangladesh.

The $12-billion Indian leather industry is among the top five in the world’s leather market. It is the world's second-largest producer of footwear and leather garments and accounts for 9% of the world's footwear production. The sector is also a significant contributor towards overall manufacturing employment and holds huge potential for job creation.

India’s export of leather and leather products for the financial year 2015-16 (FY16) recorded a fall of nearly 10%, touching $5.85 billion, against $6.49 billion in FY15. Estimates suggest that exports of leather and leather products were down 6.08% during April-October FY17 to $3,157 million from $3,362 million in the corresponding period of FY16.

Read more: This is Part-4 in the 'Rupee Impact' series. Read Part-1, Part-2, and Part-3

According to Rafeeque Ahmed, president of All India Skin and Hide Tanners and Merchants Association, the rupee’s appreciation against the US dollar has led to an increase in the cost of a pair of shoe by Rs 20-25. In comparison, the cost of a pair of shoe from the competing countries dropped by Rs 15-20 owing to the depreciation of their currencies against the US dollar.

“Overall, our product (a pair of shoe) is costlier by Rs 30-40 (compared to products from competing countries). This is a huge difference, and we cannot pass on such a cost increase to the customers,” said Ahmed, who is also one of the major exporters of leather products, especially shoes, from the country.

Ahmed said that companies were not able to say no to fresh orders, fearing they would end up losing customers to competition. “If the current trend continues, exporters will be in a major problem,” he said.

Dilip Kapur, president and founder of Hidesign that manufactures and sells premium leather products, said that such small changes affect exporters of contract manufacturing — the mainstay of Indian exports — as the business is extremely price sensitive. Kapur added that branded business, such as Hidesign’s, does not get affected by such minor changes.

Of the total leather exports from the country, 65-70% was in US dollar denomination. Ahmed noted that even customers from major European countries, excluding the UK, were buying in US dollars.

A leading exporter said that his company operates at 1-2% profit margin. If one takes the rupee appreciation into account, it translates into erosion in margins between 6% and 7%. “There is no question of profit,” the exporter said.

Companies are now looking at the domestic markets, despite the fact that it is not lucrative. “We need to run the units for the sake of not becoming sick and to show our lenders that the units are running,” said another exporter.

Exporters said that unless the government interferes and takes steps to save them and the sector, which has been recognised as a 'Focus Sector' under the 'Make In India' scheme, there was no question of achieving the Centre's ambitious target of garnering $27 billion by 2020 from the industry.

For FY18, Vietnam, a relatively new entrant in the space, has set a target of $18-billion export revenue from its leather and footwear industry alone, an increase of 10% compared to FY17.

(Rupee impact series concludes)