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CONTENT

Chapter

Particulars

I-V

Executive Summary
Chapter I

Chapter II

Introduction

1.1.

Background

1.2

Chapter Scheme

1.3

Limitations & Constraints

Leather and Leather Products Sector - An Overview

2.1

Introduction

2.2

Structure of Leather Industry

2.2.1

The Product Segments

3-5

2.2.2

Production structure of Leather Industry

5-7

2.3

Wages Salaries in Leather Sector

2.4

Competitive Benchmarking

7-8

2.5

Measures for Anti Dumping by Companies in


India

8-10

2.5.1

Chinese footwear remains controversial in EU

10-11

2.6

The Regulatory Regime

2.6.1

Competitiveness Enhancing Initiatives

11-12

2.6.2

Trade Facilitating Initiatives

12-14

Page No.

11

Chapter III

Chapter IV

Chapter V

Productivity Of Leather & Leather Products Sector

15

3.1

Introduction

15

3.2

15-16

3.3

The Key Features of the Registered Factory


Sector
Data and Variables

3.4

Growth Rate Analysis of Leather Industry

16-17

3.5

Labour Productivity Growth

17-18

3.6

Partial and Total Factor Productivity Analysis


of Leather Industry

19-21

Export Trends In Leather And Leather Products

22

4.1.

Introduction

22-24

4.2

Export of Finished Leather

24-25

4.3

Export of Leather Footwear

25-26

4.4

Export of Leather Goods

26-27

4.5

Export of Leather Garments

27-28

4.6

Export of Leather Footwear Components

28-29

4.7

Export of Saddlery and Harness

30

4.8

Major Leather Products Exporting Countries in


the World

31

4.9

World Leather Exports Growth

31-32

Globalization And Prospects For Leather Industry

33

5.1

Introduction

33

5.2

Competitive Strengths of Indian Leather


Industry

34

5.3

Indian Leather Industry: Constraints

35-36

5.4

SWOT Analysis

37-38

II

16

Chapter VI

Field Survey Findings


6.1

Profile of Leather Manufacturing Units

39-40

6.2

Turnover and profitability of the Units

40-41

6.3

Profitability of the Manufacturing Units

42-43

6.4

FDI and ICT Usage

44-45

6.5

Employment Profile

45-46

6.6

Trade Related Information

46-50

6.7

Cost Competitiveness

50-51

6.8

Price Factors

51-52

6.9

Factors affecting Productivity

52

6.10

Factors responsible for Competitiveness of the


Units
Research and development expenditure and
Product innovation
Factors affecting competitiveness of the Units

53

6.11
6.12
6.13

Chapter VII

ANNEXURE

39

Measures taken for boosting domestic &


export competitiveness during last five years

54-55
55

Recommendations

56-59

References

60-61

Annexure 1 (Survey Questionnaire)

62-71

Annexure - 2 (List of Units Contacted for the Study)

72-74

Annexure 3 (Methodology Adopted for Partial and


Total Factor Productivity Estimations)

75-77

III

53-54

LIST OF TABLES
Table
No.

Particulars

3.1

Characteristics of Registered Leather Industry in India (Value


in Rs. Lakhs, others in Numbers)

16

3.2

Growth of Organized Leather Industry

17

3.3

Labour Productivity Growth in Indian Leather Industry:


Segmentwise Analysis

18

3.4

Productivity Estimates for Labour and Capital inputs

19

3.5

Labour, Capital and Total Factor Productivity Growth (%)

20

3.6

Index of Labour, Capital and Total Factor Productivity Growth


Rates

21

4.1

Composition of Indias Leather Exports: 1991-92 to 2007-08

22

4.2

Direction of Indias Leather Exports: 1991-92 to 2007-08

24

4.3

Indias exports of finished leather: Destination wise (US$


Million)

25

4.4

Indias exports of leather footwear: Destination wise (US $


Million)

26

4.5

Indias Exports of Leather Goods: Destination wise (US $


Million)

27

4.6

Indias exports of leather garments: Destination wise (US$


Million)

28

4.7

Indias Exports of Leather Footwear Components: Destination


Wise (US $ Million)

29

4.8

Indias Exports of Saddlery and Harness: Destination Wise


(US$ Million)

30

IV

Page
No

4.9

Export Share of Major Leather Producing Countries in the


World

31

4.10

Growth in World Trade of Leather and Leather Products

32

6.1

Distribution of Leather & Leather Products Manufacturing


Units NPC Field Survey

39

6.2

Average Annual Turnover of the 62 Leather Manufacturing


Units State wise (Rs. Lakhs)

41

6.3.a

Average Profitability of the Units during 1991-2000 (Number


of Responding Manufacturing Units)

42

6.3.b

Average Profitability of the Units after 2000 (Number of


Responding Manufacturing Units)

42

6.4

Extent of increase in Profitability after 2000

42

6.5

Extent of decrease in Profitability after 2000

43

6.6

Extent of ICT usage in the Unit

44

6.7

Average Employment per Unit

45

6.8

Range of increase in employment

46

6.9

Units engaged in exports (Number of Manufacturing firms)

46

6.10

Percentage of exports to total sales

47

6.11

Growth in export during the last five years

47

6.12

Range of increase in exports during last five years

48

6.13

Import by leather manufacturing units

48

6.14

Level of import of raw materials for units Production


requirement

49

6.15

Level of import of finished product

49

6.16

Domestic market share of the manufacturing unit

49

6.17

Share of domestic sales to total sales

50

6.18

Cost competitiveness of the firm during the last five years due
to labor productivity

50

6.19

Cost Competitiveness of firms due to Total Factor Productivity

51

6.20

Ratio of various Cost Components in Total Cost of Production


Respondent
(%)

51

6.21

Labour productivity during last five years

52

6.22

Research and Development Expenditure by Manufacturing


firms

53

6.23

R&D and Product Innovation

54

VI

Productivity & Competitiveness of Indian Manufacturing Leather & Leather Products Sector

EXECUTIVE SUMMARY
Leather and Leather Products sector is one of the important sectors among the various
constituents of the manufacturing sector in India, mainly due to its contribution towards
employment. It is one of the unique sectors which have the advantage of the both value
addition and export potential. It also contributes significantly to total manufacturing output
and exports from the country.
Leather industry has massive potential for employment, output growth and export. The sector
is one of the top eight foreign exchange earners worth over Rs. 10000 crores per annum and
accounts for 3% of the global leather-related trade of Rs. 387200 crores. An estimated 15%
of total purchase of leading global brands in footwear, garments, leather goods &
accessories in Europe, and 10 percent of global supply is outsourced from India. Leather
industry has undergone dramatic transformation in the recent years from a mere exporter of
raw materials in the sixties to that of value added finished products in the nineties.
The Indian leather industry comprises of both organized and unorganized and organized
sectors. The organised manufacturing sector broadly consists of tanning and dressing of
leather manufacture of luggage, handbags saddlery, harness and footwear. Currently
unorganized sector plays a dominant role in the entire production. The small scale, cottage
and artisan sectors account for over 75 per cent of the total production and majority of them
belong to unorganized sector. Though footwear is produced by both large and small scale
sector, the small scale sector has almost 90 per cent share in the total production of footwear
in India.
Indias leather and leather products exports have been growing at 6.80% per annum during
1991-92 to 2007-08. Major export destinations are Germany, USA, UK, Italy and Hong
Kong. Indias exports of finished leather have been growing at the rate of 6.42% during
1993-94 to 2007-08. Hong Kong is one of the major export destinations of finished leather
products. Hong Kong cornered the largest share (42%) of Indias finished leather export in
2007-08.
Leather Footwear: Indias exports of leather footwear have been growing at the annual rate
of 3.50% during 1991-92 to 2007-08. The leading importer of Indian leather footwear is UK
followed by Germany, USA, Italy, etc.
Leather Goods: Indias exports of leather goods have been decreasing at the rate of 2% per
annum during 1991-92 to 2007-08 period. Germanys position as the major destination of
Indias leather goods exports during the early 90s has changed drastically. UK, Spain,
Netherlands, Australia, UAE and Belgium have all increased their imports from India.
Leather Garments: Leather garments exports from India have been decreasing at the annual
rate of 2.46% during 1995-96 to 2007-08. Germany is the leading importer of leather
garments during 2007-08. The share of Belgium and Canada has increased over the years.
Leather garments exports to Germany, Italy, USA, France, UK and Netherlands declined over
the years.
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Leather Footwear Components: Indias exports of leather footwear components have been
decreasing at an annual rate of 2.27% during 1995-96 to 2007-08. Indias exports of leather
footwear components have increased to Spain, Portugal, France, Switzerland, Slovakia,
Austria and Hungar, Italy, Germany and France are the major importers of Indian Leather
Footwear components.
Saddlery and Harnesses: Indias exports of saddlery and harnesses have been increasing at
the annual rate of 8.96% in the period of 1995-96 to 2007-08. However, the export shares of
USA, Germany, France, Netherlands and Australia have been declining.
Globalisation and Prospects for Indian Leather Sector
Currently India has a share of 2.3 per cent (i.e. US $ 2 billion) of global trade of leather and
leather products. India has a large and growing middle class of about 250 million people with
good purchasing power. Global players in the leather business, big or small are today
focusing increasingly on India's domestic market.
The livestock is the raw material for the leather industry. Cattle, buffaloes, goat and sheep
are the four live stock species which provide the basic raw materials for the leather industry.
India ranks first among major livestock holding countries in the world. In fact, India has the
capacity to fulfill 10% of the global leather requirement. The annual availability of 218
million good quality pieces of hides and skins is the main strength of the industry. Along with
rich endowment of raw materials, the industry has access to abundant supply of cheap labour.
Over the years through government support the industry has been able to develop its R & D
facilities considerably. Though there is much to be done in order to meet the challenges of
globalization, the industry has established a sound base for the same.
Growth Constraints
There continues to be acute shortage of good quality finished leather. As a result the industry
is dependent on import from China and other countries. Lack of adequate product quality
adversely affected exports. On the technology front, most tanneries use outdated technology
which inhibits them from producing good quality leather in spite of access to quality raw
materials such as hides and skins.
Leather industry across the globe has been subjected to stringent pollution control norms due
to growing environmental concerns. Since the industry is dominated by small and tiny
producers, the availability of finance and the cost of capital turn out to be a major constraint.
The Indian footwear component industry which is the pride of India in terms of its
contribution to total leather exports is facing stiff competition from China in a number of shoe
components - cellulose insole fabrics, coated, impregnated fabrics and interlinings, where the
price of the imported materials is between 40% and 50% lower than the indigenously
produced materials. Along with the lack of competitiveness, the size of the Indian footwear
segment appears to be too small in comparison to that of China. This is evident from the fact
that India's share of the global footwear imports is 1.5% while that of China is 14%.
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Productivity & Competitiveness of Indian Manufacturing Leather & Leather Products Sector

The main reason for the low scale of operation in the leather industry and in the footwear
segment could be due to the lack of investments in the sector. Over the last 20 years China
has attracted more than 10 times of investment that India has attracted. This may be of the
fact that for a long time the sector almost in its entirety was in the SSI list. Only after 2001 the
leather sector was de-reserved.
Field Survey Findings
In order to find out the issues and concerns at the firm level a field survey was carried out
with structured questionnaires. Firm level details on turnover, employment, domestic and
foreign trade, product description, cost related information, factors affecting productivity,
factors responsible for competitiveness etc. were compiled.
Majority of the responding units (58%) belong to small scale categories. Nearly 63%
responding manufacturing units opined that the quality accreditations boosted their business.
As regards to average profitability after 2000, 76% units reported that there is an increase of
profitability. A large majority of manufacturing units reported an increase in export in the
recent years. Most of them reported that foreign direct investment is less than 10 percent.
Average employment across the manufacturing units have been found increasing from 257
employees per unit during 2003-04 to 315 employees per unit during 2007-08. The decline in
employment reported during the last year indicates that the sector is facing problems due to
increasing competition. The casualization of labour increased during the last five years.
Cost competitiveness of the manufacturing units increased during the last five years. More
than 86% units reported that price competitiveness increased during the last five years.
However, the product price was reported increasing due to the increase in the import of raw
materials during the last five years.
A large majority of manufacturing units (65%) reported an increase in labour productivity
during the last five years.
Though the availability of quality human resources increased during the last five years, it is
reported to be still short of industry need.
As far as Government interface with business/private sector is concerned, about 69%
manufacturers are not satisfied.
Major factors that adversely affected the competitiveness of leather manufacturing in India
have been identified as non conducive government policies and taxes, rupee appreciation
against dollar, increase in raw material price, poor quality of products, increasing labour
cost, infrastructure bottlenecks, intense competition from China, very high interest rate, lack
of quality work force, exports clearance problems, higher import and excise duty, high power
& water charges, old designs, changes in the foreign buyers taste preferences, preference for
branded items, higher income tax rate on export profits, pollution norms etc.
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Productivity & Competitiveness of Indian Manufacturing Leather & Leather Products Sector

Recommendations:
It is quite apparent that the globalization process though threatens Indian leather sector,
provides ample opportunity in the form of potential growth.
Efforts should be made by government and other agencies to improve product quality.
through improved design, development and prototyping.
Emphasis should be put on building brand loyalties for Indian leather products.
Efforts should be made by the council of leather export to concentrate on niche markets
like Europe. Also, the industry should focus on women's fashion footwear, where India
faces competition mainly from Eastern European countries.
Leather producing units should be given incentives to adopt adequate pollution control
measures. Government can evolve support schemes for leather manufacturing units that
implements pollution control measures.
Emphasis should be placed on the expansion and modernization of all segments of the
leather industry including tanneries. In fact, there is need for a paradigm shift in the
adoption of technology in the leather industry in India.
Not only the rationalization of the duty structure but also all round efforts to be made to
encourage existing producers of leather products for technological up gradation.
Modernization will definitely require a heavy dose of investment for which availability of
capital will be a major constraint. Since, most of the players in the leather sector are
small and tiny industries, the government should take proactive steps for easing the
capital constraint.
Encouraging FDI in the leather sector would ease capital constraint and also improve the
quality of Indian leather products. However, in order to increase FDI in the Indian
leather sector it is essential to encourage good governance and global bench mark of best
practices and provide good infrastructure for the sector.
Development of human resource is an important requirement of Indian leather industry.
In order to increase the availability of a large pool of skilled workers and artisans, efforts
should be made to enhance training and capacity building infrastructure in the country.
In order to rejuvenate and drive the Indian leather industry on its potential growth
trajectory there has to be an appropriate detailed policy package and a road map for the
fast track growth and development of the sector.
There should be timely and a purposeful review of the policies implemented by the
government for the leather sector from time to time.

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There is a need for developing a coherent statistical data base on the leather sector with
regular updating.
Reduction in excise duty for Leather and Footwear Industry should be considered. The
Central excise duty has been reduced by GoI as part of the economic stimulus packages
Announced on December 7, 2008. The central excise duty on footwear of MRP between
Rs. 250/pair to MRP Rs. 750/pair has been reduced from 8% to 4% and for footwear of
MRP exceeding Rs. 750/pair has been reduced from 14% to 10% as part of the economic
stimulus package. In the stimulus package announced on February 24, 2009, there has
been reduction in the general rate of central excise duty from 10 per cent to 8 per cent.
The excise duty on footwear of MRP exceeding Rs. 750/pair has now been further reduced
from 10% to 8% in the third stimulus package after being reduced from 14% to 10% in
the first fiscal stimulus package.

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CHAPTER I
INTRODUCTION
1.1 Background
The leather and leather products sector has been identified as one of the unique sectors which
has the advantage of both value addition and export potential. Apart from the contribution to
employment, this sector contributes significantly to total manufacturing output and exports
from the country.
The methodology adopted for the present study is based on two pronged approaches. First
approach is based on a review and analysis of published data and literature related to the
sector. Second approach is to conduct an in-depth field survey of the manufacturing units
through structured questionnaires and discussions. The survey has been carried out among
middle and top level executives of leather and leather manufacturing units spread across
various leather clusters in India. Apart from the unit level investigations, the views of leading
experts such as management specialists, technologists, economists, policy makers etc., have
also been sought on a host of issues related to the sector.
In the recent years industrial sector has exhibited impressive signs of recovery from a low
overall industrial growth rate (based on index of industrial production) of 2.7 per cent in the
year 2000-01 to 11.3 per cent during 2006-07. After peaking in the year 2006-07, growth rate
of the sector has dipped to 8% in 2007-08 as a result of number of adverse factors such as
rupee appreciation against dollar, increase in inflation rates, rising fuel prices, infrastructure
constraints, restrictive labour laws, of late global economic recession etc.
In an era of technology driven growth, very few manufacturing activities contribute
significantly to employment. The manufacturing of leather and leather product is one such
sector which contributes considerably to employment generation in the manufacturing sector
though it has a meager (1.1 per cent) weight in the Index of Industrial Production (IIP).
Moreover, this sector is among a few sectors that can benefit from globalization due to
comparative cost advantages that India enjoys.
Indian leather industry, provides employment to 2.5 million persons and has access to cheap
raw material, skilled labour, and a vibrant domestic market. Probably these are some of the
important ingredients on which Indian leather industry rely on to face the challenges in the
coming years.
Global players have shown considerable interest in Indian leather sector and leading leather
brands from the US and Europe are sourcing leather and leather products from India. Thus,
Indian leather industry has a significant potential to grow and to provide large-scale
employment opportunities.

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1.2 Chapter Scheme


This study report has been presented in six chapters. Chapter II presents an overview of
leather industry in India. Chapter III discuss productivity perfofrmance of Indian leather &
leather goods sector. Chapter IV analyses the trends in exports of leather products from India.
Chapter IV analyses the prospects of Indian leather industry in the wake of globalization and
provides a SWOT analysis. Chapter V provides the feedback received from the field survey of
leather manufacturing units and other stakeholders spread across India. Chapter VI presents
recommendations emerging from the study.
1.3 Limitations & Constraints
Keeping in view of initially set scope of work that was mainly to focus the study on secondary
data sources, which has its own inherent limitations as a result of reliability in working out the
projections, in order to substantiate the secondary data field evidences have been also
included through a primary survey later on.
Due to the limited resources available in terms of finance, the field survey was undertaken
with limited scope and coverage. However, efforts have been made to minimize such
constraints by analyzing various data sources in order to arrive at broad recommendations for
the development of the sector. The recommendations have been formulated considering its
implementability.

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Productivity & Competitiveness of Indian Manufacturing Leather & Leather Products Sector

CHAPTER II
LEATHER AND LEATHER PRODUCTS SECTOR: AN OVERVIEW
2.1 Introduction
Leather industry occupies a prominent place in the Indian economy because of its massive
potential for employment, output growth and export. Currently, the industry employs about
2.5 million persons of which 30% are women. Nearly, 50 per cent of the total domestic
production is exported. The sector is one of the top eight foreign exchange earners of the
country and accounts for 2.5% of the global leather-related trade worth Rs. 387200 crores. In
India, leather exports are growing at an annual rate of 5-6 per cent per annum (CII, 2006). The
Indian leather industry includes both formal as well as informal sectors from small artisans to
global players and produces a wide range of products from raw hides to fashionable shoes.
Specialized institutions like Council for Leather Exports (CLE) and Central Leather Research
Institute (CLRI) have been set up to promote the overall performance of the leather sector.
The leather industry has undergone dramatic transformation from a mere exporter of raw
materials in the sixties to exporter of value added finished products in the nineties. The share
of value added finished items in the total exports from the leather sector have reached 80
percent now against 20 percent in the 1970s. The Policy initiatives taken by the Government
since 1973 for the development of the sector through optimal utilization of available raw
materials have been instrumental in the phenomenal transformation of the leather industry.
One important policy initiative taken by the government includes liberalization of the leather
sector. Government has de-reserved the manufacture of various types of leather viz. semifinished leather, harness leather, leather shoes etc., which are produced by small-scale sector.
Moreover, government is setting up exclusive shoe component parks for meeting the demands
of the global sourcing majors.
It is expected that Indian foot wear industry will grow leaps and bounds at a rate of 10% to
15% in the future years. To tap the huge domestic footwear market, branded players are
establishing footwear supermarkets in India.
2.2 Structure of Leather Industry
Important aspects of the industrial structure can be categorized into product segments and
structural components. In the following sections we analyze these two aspects separately.
2.2.1 The Product Segments
The Indian leather industry comprising of both organized and unorganized sector, produces
wide range of leather products. The organized sector of leather products broadly consists of
tanning and dressing of leather (NIC Code- 1911), manufacturing luggage, handbags
saddlery, harness (NIC Code-1912) and footwear (NIC Code-1920). However, the
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unorganized sector along with the above broad category of leather products produces a
number of other leather items. In order to have a clear picture of the industry we focus on four
major items produced by the Indian leather industry. These four items constitute the various
product segments of the Indian leather industry.
(a)
(b)
(c)
(d)

Leather footwear
Leather footwear components
Leather garments
Leather goods

(a) Leather Footwear: Among the above mentioned product segments, the footwear segment
is the pride of Indian leather industry. It ranks second in the world, next to China. India is the
world's second largest producer of footwear with estimated production of more than 700
million pairs per annum. Footwear accounts for 18 percent share of total exports of leather
products worth U.S. $300 million per annum.
Various types of shoes produced and exported by India are dress shoes, casuals, moccasins,
sports shoes, huaraches, sandals, ballerinas, and booties. Major production centers are
Chennai, Delhi, Agra, Kanpur, Mumbai, Kolkatta and Jalandhar. Most of the Indian
manufacturers of modern footwear are already supplying to major brands in Europe and USA.
In the last five years, the leather footwear and footwear component production increased by
60%. Interestingly, despite producing more of gents` footwear India is major producer of
ladies footwear in the world.Though, the Leather Industry, (especially the Footwear industry)
has made a strong contribution to the Indian economy, India's share in global trade remains as
low as U.S. $ 30 billion.
Being a labor intensive industry, its contribution to employment is significant which consists
of a large chunk of illiterate workers. About 40% of employment is represented by unskilled
workers indulged in table work operation in the assembly line. Minority community and
lower caste people have their sole source of livelihood from collecting carcasses, skinning
dead animals and tanning leather which also consist a large proportion of employment
provided by leather industry.
(b) Leather Footwear Components: Leather footwear component is another important
segment of the Indian leather industry. The product range in this segment includes shoe
Uppers, Sandal Uppers, Moccasin Lasted Uppers, Unit soles, Insole and Sock Linings etc.
which are mainly exported to UK, Germany, Italy, USA., France, Portugal, Switzerland,
Spain, Netherlands and Austria. The important production centers for this segment are Agra,
Ambur, Bangalore, Chennai, Delhi, Jallandhar, Kanpur and Mumbai.
(c) Leather Garments: The Leather Garment segment occupies a significant place in the
Indian leather industry. The product classification of leather garments comprises of jackets,
long coats, waist coats, shirts, pant/short, children garments, motorbike jackets, aprons and
industrial leather garments.

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Indian leather garments sector entered the world market in the mid-eighties. It accounts for
nearly $ 300 million of exports. Germany is a major export market for leather garments. India,
China and Turkey were the major suppliers of leather garments to the German market and
accounts for about 78% of the market share. Among the three major exporting nations of
leather garments, India has captured 20% of market share in both German and EU markets.
Other markets for India are Italy, U.K., U.S.A. France, Spain and Netherlands. Denmark,
Switzerland and Canada are among latest export destinations.
(d) Leather Goods: The leather goods segment of Indian leather industry range from
designer collections to personal leather accessories, comprising of a wide range of products.
And its share is nearly 21 per cent in Indian leather industry. This product segment includes
the products like bags, handbags, hand gloves, industrial gloves, wallets, ruck sacks, folios,
brief cases, travel ware, belts, sports goods, upholstery saddlery goods etc. The production of
these items mainly takes place in large number of units located in Chennai, Kanpur and
Calcutta. Significant feature of this is that it employees skilled labor and they are equipped
with modern and sophisticated machinery. This segment meets the requirements of bulk
buyers and consumers in Europe, USA and Australia.
The major market for Indian leather goods segment is Germany, with an off take of about 25
per cent of the leather goods produced in India followed by USA, UK, France and Italy. This
leather goods segment has maintained an average growth rate of 11 per cent during the last
five years.
2.2.2 Production structure of Leather Industry
Unorganized sector plays a dominant role in the entire production of leather and leather
products. The small scale, cottage and artisan sectors account for over 75 per cent of the total
production. Though the small scale industries (SSI) are classified as organized sector most of
them are in the unorganized sector. A contrast of product segments with the production
structure of the leather industry in India reveals that while footwear production is undertaken
both in large and small scale sectors, leather garments and other products are mainly produced
in the small-scale sector. In fact, though footwear is produced both in the large and small
scale sector, the small scale sector has almost 90 per cent share in the total production of
footwear in India. There are about 42,000 registered SSI units in India producing leather
footwear.
Location wise Indian leather industry can be divided into 5 regions namely, southern region,
northern region, eastern region, western and central region. Among the five regions southern
region is relatively wide spread and comprises states like Tamil Nadu, Andhra Pradesh and
Karnataka. Chennai, Ambur, Ranipet, Vaniyambadi, Trichy and Dindigul are the major
producing centers in the state of Tamilnadu. Whereas, the capital cities of Hyderabad and
Bangalore are the major production centres in the state of Andhra Pradesh and Karnataka
respectively. Tamil Nadu is the leading state in India in terms of number of registered
factories for leather and footwear industry. The state of Tamil Nadu had 37% (810) of total
leather and footwear factories in India at the end of 2004-05. In the northern region the state
of Punjab and national capital territory of Delhi are the two main producing locations.
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Jallandhar is the major producing centre in Punjab. In the eastern region West Bengal is the
only state which produces leather and leather products significantly where kolkata is the
major producing centre. In the western region, Maharastra is the major producing state for
leather and leather products where Mumbai is the major producing centre. Similarly, in the
central region Uttar Pradesh is the major producer with Kanpur and Agra as the two major
producing centers. Uttar Pradesh is the second major state in India in terms of number of
registered factories with 15% of total factories in India at the end of 2004-05. The states of
Tamil Nadu and Uttar Pradesh together accounted for 52% of total factories in 2004-05. West
Bengal and Punjab are the other key states in India with significant number of registered
leather and footwear manufacturing units. The following map provides the distribution of
leather production centers across the country.

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The nature of these production centers varies in terms of the distribution of producing units
and product segments. For example, the small scale industries producing leather are mainly
concentrated in the state of Uttar Pradesh and Tamil Nadu.
As far as the concentration of various product segments are concerned, Agra and Ambur are
the major production centers of footwear and footwear components. Similarly, Bangalore,
Chennai, Delhi, Hyderabad etc are leading producers of leather apparels whereas Kanpur,
Kolkata, Mumbai etc are the major producing centers for of leather accessories. Thus, the
different production centers cater to different segments of leather industry. Nevertheless, there
is a great deal of overlapping in this respect also because various segments of the leather
industry are more or less interrelated due to scale benefits on account of location.
2.3 Wages Salaries in Leather Sector
In the leather industry, that both female and male workers are offered the same wage and
there is no discrimination against female workforce. The total number of shifts across firms is
approximately in the region of 26 per month. Large variations in wages paid to workers across
firms are observed. These variations are noticeable in terms of both payments made via piece
rates or monthly wages.
Since the work in this industry is very skill based and people with any prior industry training
are always preferred. Such workforce is scarce in supply.
In the case of machinery usage, it is observed that across most units, firms have increased
their machinery usage. This shows that leather manufacturing units across the country are
purchasing more machines and upgrading their technology as new machines by and large
embody better and improved technology of production.
Mixed response is found to adoption of modern technology in the recent past. It is asserted
that this is due to the fact that large firms have the financial capability to undertake
investment in modern machineries and hence consider technological up gradation as a natural
phenomenon of moving to a higher end of value chain. On the other hand, small firms
because of several constraints- skilled manpower, expensive machinery and fluctuating
market demands are unable risk technological up gradation.
2.4 Competitive Benchmarking
The competitive benchmarking of India has been done with China, Italy and Brazil to identify
the areas where India has competitive advantages and disadvantages as compared to these
countries. The exports of India have registered CAGR of 3.61% from 2000 to 2006 as
compared to 10% achieved by China. While the exports of India has registered a higher
CAGR as compared to Italy and Hong Brazil which are the other two major exporters of
leather and footwear products, the analysis of the value of exports show that the share of India
in total exports of leather and leather products in world is very low at 3.14%. The higher
CAGR of India can also be attributed to lower exports in absolute terms in 2001 as compared
to Brazil and Italy.
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The labour productivity index of India is among the lowest in the Asian Countries at 0.94 in
2005 as per the study conducted by Asian Productivity Organisation (APO). Mongolia and
China have the highest labour productivity index at 1.65 and 1.56 in 2005. The labour
productivity in India is very low as compared to China in production of shoes, garments and
leather goods. The pairs of shoes per employee per day in India are 20 pairs as compared to
China which was at 40 pairs. Similarly, the pieces of leather goods per employee per day in
India are low at 6-8 pieces as compared to China at 12-15 pieces. The labour productivity of
India has been impacted due to rigid labour laws like lack of flexibility in contract labour
laws. Units employing over 100 people currently fall under the purview of Industrial Disputes
Act. The Act stipulates that employers must obtain necessary approvals to effect lay-offs. This
proves to be a hindrance especially for small and medium enterprises.
2.5 Measures for Anti Dumping by Companies in India
As in most other countries, protection appears to have been the dominant motivation behind
the levying of anti dumping duties in India. General Agreement on Tariffs and Trade (GATT)
therefore contains some contingent measures, which permit the signatories to withdraw their
normal obligations under specified circumstances and impose higher protection against import
of one or more goods from one or more countries. Contingent protection measures fall under
three categories -- antidumping, countervailing and safeguard measures.
Anti-dumping duties are expected to overcome only the problem of dumping. To deal with the
problem of direct and indirect Government subsidies there is provision for countervailing
duties. In both cases injury and causal link must necessarily be proved. Safeguard measures
dealing with the problem of "increased imports" and neither dumping nor subsidies need be
present. For safeguard measures to be implemented serious injury to the domestic industry is
required to be established. Some safeguard measures are tariff increases or quantitative
restrictions; it remains a sparingly used measure, as compensation may have to be paid to the
trading partners in appropriate cases.
The subject of anti dumping is very topical and highly controversial. There seems to be some
ambiguity in the definition of trade-distorting phenomenon ''dumping''. A product is said to
have been dumped in the Indian market if it is introduced into the commerce of the country at
less than the normal value of the product and it causes/threatens material injury to an
established industry of the country. The phenomenon of dumping is per se not condemnable
as it is recognized that producers sell their goods at different prices to different market.
Differences in price are also due to demand and supply. Export prices are generally lower
than domestic prices. However, where dumping causes or threatens to cause material injury to
the domestic industry of India, the Authority (Ministry of Finance) initiates necessary action
for investigations and subsequent imposition of anti-dumping duties. Normal Value is the
comparable price at which the goods are sold, in the ordinary course of trade. The Normal
Value cannot be determined by means of domestic sales. The act provides for the following
two alternative methods.
1. Comparable representative Export Price to an appropriate third country.

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2. Cost of production in the country of origin with reasonable addition for administrative,
selling and general costs and for profits.
The 'Margin of Dumping' is generally expressed as a percentage of the Export Price. It refers
to the difference between the Normal Value of the similar article and the Export Price.
Article VI of the GATT states the measure to prevent dumping. Most WTO member countries
have adopted/amended their antidumping legislation largely in accordance with the GATT
provisions to deal with dumped imports. Pursuant to GATT 1994 detailed guidelines have
been prescribed under the specific agreements which have also been incorporated in the
national legislations of the member countries of the WTO.
Since 1-1-95 Indian Laws have been amended in order to bring them in line with the
provisions of the respective GATT agreements. Sections 9A, 9B and 9C of the Customs Tariff
Act, 1975 and the corresponding Customs Tariff (Identification, Assessment and Collection of
Anti-Dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995 there
under form the legal basis for anti-dumping investigations and for the levy of anti-dumping
duties. Some have raised questions about the ambiguities in antidumping regulations and
procedures; others have questioned the economic rationale behind such laws.
Imposition of Anti Dumping Duty is based on commodity to commodity, country to country
and suppliers in exporting countries. Global Trade Protection (GTP) report has reported that
global anti-dumping activity has remained at relatively low levels in 2005 and 2006. The
reason being that commodity type prices remain relatively high etc., a) less dumping is taking
place and b) it can be difficult to establish that domestic industries are injured. Despite the
relatively low levels of anti-dumping activity worldwide. In India, the numbers of antidumping cases have increased substantially over the last five years.
China continued to be the main target of anti-dumping cases in the recent years. Interesting to
note, is the fact that there is a significant upward trend towards China as a target. The
proportion of global anti-dumping initiations against China has been significantly increasing
in recent years. The Global Trade Protection Report has found that global trade protection
activity in the first six months of 2007 was at a record low since the creation of the WTO.
The GATT agreement as well as the Indian laws provides that the injured domestic industry is
allowed to file for relief under the anti-dumping as well as countervailing duties. However,
the same articles shall not be subjected to both countervailing and anti-dumping duties to
compensate for the same situation of dumping or export subsidization.
The investigation process involves the following steps:
1. Screening - the document is scrutinized and if the evidence is not adequate, then a
deficiency letter is issued normally within 20 days of the receipt of the application.
2. Initiation - Public Notice is issued initiating an investigation to determine the existence
and effect of the alleged dumping. The Designated Authority notifies the diplomatic
representative of the Government of the exporting country before proceeding to initiate
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the investigation, within 45 days of the date of receipt of a properly documented


application.
3. Access to information - Non-confidential evidence is provided.
4. Preliminary Findings - in appropriate cases, finding containing the detailed information on
the main reasons behind the determination within 150 days of initiation.
5. Provisional Duty - not exceeding the margin of dumping, but only after the expiry of 60
days from the date of initiation of investigation and will remain in force only for a period
not exceeding 6 months, extendable to 9 months
6. Oral Evidence - request to opportunity to present the relevant information orally, but
subsequently it must be reproduced in writing.
7. Final Determination - within 150 days of the date of preliminary determination.
8. Disclosure of Information - interested parties must be informed of the essential facts
which form the basis for its decision before the final finding is made.
9. Time-limit for Investigation Process - one year from the date of initiation of the
investigation, but maybe extended for an additional six months.
10. Termination - under specified cases.
A retrospective application will not go beyond 90 days of the date of imposition of
provisional duty. An anti-dumping duty imposed under the Act shall have the effect for 5
years from the date of imposition, unless revoked earlier. An appeal against the order of the
Designated Authority may be filed with the Customs, Excise and Gold (Control) Appellate
Tribunal within 90 days of the date of the order. The Legislation provides for the collection
and refund of duty.
Another aspect of dumping which is not altogether trivial is the fact that, against the
background of a once hungry-for-imported-goods country, countries try to sell, and mostly
succeed in selling, to India goods which would not be saleable in their own countries mainly
by virtue of quality and age -- time elapsed and time remaining in relation to manufacturing
date. It appears that there are no barriers in India at which these types of goods are stopped
and checked.
2.5.1 Chinese footwear remains controversial in EU
In October 2008, the European Union (EU) initiated an expiry review of anti-dumping duties
on footwear with leather uppers from China. EU anti-dumping measures are normally adopted
for a 5 year period. However, due to the extremely political nature of the footwear antidumping investigation, measures in this case were exceptionally adopted for only 2 years.
This reflected the fact that there was a large involvement of retailers and importers in the
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investigation, significant because the EU has a public interest test (Community interest)
before measures can be adopted. The expiry review is just as controversial. Fifteen of the 27
EU Member States opposed the initiation of an expiry review, believing that the measures
should be allowed to expire after the 2 year duration. At initiation, the European Commission
is only obliged to consult the Member States and thus the investigation was initiated.
However, if the Commission determines that the measures should continue, 15 Member States
would be sufficient to block the continuation. Ultimately, Member States must adopt the
measures proposed by the Commission and a simple majority (14) is sufficient to force the
expiry of the measures. The duty remains in place during the expiry review. The Commission
stated in a press release that it would work to complete the review as expeditiously as
possible, if possible in shorter than the usual timeframe of 12-15 months.
2.6 The Regulatory Regime
The continuous support of the Government has resulted in massive transformation of the
Indian leather and leather products sector. As maintained earlier, the industry which was a
mere exporter of raw material in the sixties has now become one of the major exporters of the
value added finished products.
Recognizing the opportunities for Indian leather industry from globalization, the government
over the last decade and a half has under taken several initiatives. Those initiatives may be
broadly divided into two categories. One is competitiveness enhancing initiatives (those,
directly affect the competitiveness) and the other is the trade facilitating initiatives (those
affect the exports). Of course, the trade facilitating initiatives also affect the overall
competitiveness of the industry, but they affect indirectly. Nevertheless, it is important to
have a discussion of these broad categories of initiatives undertaken by the government to
improve the performance of the leather industry in India.
2.6.1 Competitiveness Enhancing Initiatives
The government over the last decade and a half has undertaken various measures in order to
enhance the competitiveness of leather industry in India. Some of the important measures are
be the followings. Firstly, as a part of the liberalization measures, most of the items of
manufacture in the leather sector have been de-licensed. And the Government has de-reserved
the manufacture of various types of leather including semi-finished leather, harness leather,
leather shoes etc. from small-scale sector.
Secondly, National Leather Development Programme (NLDP) was implemented from April
1992 to September 1998 with the assistance from UNDP. The programme aimed at integrated
development of the leather industry through selected institutions/agencies in the country.
The programme was successful in creating institutional facilities of international standards
and capacity to meet the requirements of trained man-power. In order to consolidate the gains
of this project and in line with sustainable human development concerns, Phase-II of the
programme, namely, SIDE-NLDP (Small Industries and Development and Employment

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Programme in leather sector) was launched with UNDP assistance of US $ 7 million in


September, 1998.
Thirdly, the Indian Leather Development Programme (ILDP) was implemented as one of the
Ninth Plan programmes to complement NLDP. The objectives of the ILDP were mainly to
bridge critical gaps in the infrastructure for integrated development of the leather industry,
activate national agencies towards tackling gaps in the industry, to promote productivity,
value addition, encourage investment, trade development and building up of information base
for the leather industry.
Fourthly, National Leather Technology Mission (NLTM) was launched in 1995 for integrated
development of tanning sector. The programme mainly focused on areas like augmentation of
raw material requirements of the leather industry and promotion of environmentally cleaner
leather processing methods through use of modern technology. NLTM had a total of 172
activities covering 16 states in the country. In fact, the support for tannery modernisation was
given a very high priority under all the aforesaid programmes.
Fifthly, on June 30, 2005, the Cabinet Committee on Economic Affairs (CCEA) had decided
to implement Rs 2.9 billion scheme for the integrated development of the leather sector.
Under this scheme, modernization of existing tanneries and setting up of new units for
footwear, components and leather products were planned. This scheme is expected to result in
gains in terms of productivity, right-sizing of capacity, cost-cutting, and design-development.
Apart from the above initiatives which have direct implications for the competitiveness of
Indian leather industry, the government has undertaken several other initiatives in the recent
years which are basically trade facilitating in nature i.e. they aim at improving the prospects
of export for Indian leather goods.
2.6.2 Trade Facilitating Initiatives
National Foreign Trade Policy (FTP) 2004-09 is perhaps one of the major initiatives which
aims at improving export prospects of Indian industries in general. However, some of its
components grossly address the trade concerns of the Indian leather industry in particular.
Apart from those subcomponents, there are various other steps which the government has
undertaken in recent years in order to improve the export prospects of Indian leather goods.
The followings could be considered as some of the important trade facilitating initiatives of
the government in the recent years.
Firstly, FTP 2004-09 primarily focuses on procedural simplification and trade facilitation
measures. As a result several schemes which were hitherto un-availed by the exporter have
turned out to be attractive.
Secondly, the formation of Inter-State Trade Council to facilitate an enabling coordination
between the Central and State Governments in trade policy matters is a very significant step
towards increasing export of Indian industries in general and leather industries in particular.

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Thirdly, the Export Promotion Capital Goods Scheme ( EPCG) scheme has been made further
attractive to the SSI sector, as the export obligation has been brought down from 8 times of
duty saved to 6 times and procedures for availing the EPCG scheme has been simplified.
Fourthly, the Advance License scheme has also been made more attractive with the
introduction of various procedural simplification measure, more particularly, all categories of
exporters having past export performance can now avail the Advance License for annual
requirement, instead of the earlier practice of restricting the facility to only status
holders. Similarly, the special facility introduced to the Status Holders in the erstwhile EXIM
Policy 2003-04 has also now been operationalized. The schemes would definitely incentivise
the industry to aim at aggressive growth.
Fifthly, a single common form called Aayaat Niryaat Form has been introduced which is a 50
page set of forms as against the earlier 120 page set.
Sixthly, the export obligation on production of goods reserved for the small scale sector in the
organized sector has been brought down from 75 percent to 50 percent to encourage exports
while providing a reasonable safeguard to the small scale and cottage sector. Non-SSI units
can, however, take up manufacture of finished leather from semi-finished stage without any
export obligation.
Seventhly, the government has allowed the import of raw materials and machinery and
components under Open General License (OGL) at concessional rates of duty.
Eighthly, government has made efforts to encourage domestic manufacturer of components
by promoting joint ventures and by duty rationalization on inputs.
Ninthly, the product segments like tanned/dressed fur skins and chamois leather has been
removed from the list of industries requiring compulsory licensing.
Tenthly, in tune with the growing demand for footwear, the government is setting up
exclusive shoe component parks for meeting the demands of the global sourcing majors.
Finally, the Prime Minister has recently approved development of leather sector under the
Mission Mode, since various ministries like the Animal Husbandry, Rural development,
commerce and industries, Finance etc are involved in the development of this sector.
Consequent upon the approval of the Mission Mode, the Planning Commission has
constituted an Inter Ministerial Committee so that the inter-ministerial issues could be sorted
out in a single forum.
With all such pro-active policy initiatives undertaken by the government in recent years, it is
expected that the share of Indian leather industry in the global leather trade will increase from
the present 2.32% to 4.2% by 2010, thereby its exports in value terms will enhance from the
present Rs.10000 to Rs.20000 crore, and in the process the industry will provide an additional
employment to about one million people. However, the Expectations would get translated into
reality if and only if the Indian leather industry grows significantly in the coming years. In an
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era of globalization there are two important things which govern the growth. One is the
opportunity available from the globalization and the other is the competitive potential of the
industry to capitalize the opportunity. Therefore, it is pertinent to analyse the prospects for
Indian leather industries from globalization.

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CHAPTER III
PRODUCTIVITY OF LEATHER & LEATHER PRODUCTS SECTOR
3.1 Introduction
This chapter analyses productivity performance of organized registered manufactures. The
organized factory sector occupies an important position in leather production in India.*
Though its share is less in comparison to unorganized sector, its importance cannot be under
estimated. Structurally, the organized factory sector consists of both small scale and largescale registered enterprises. The developments in the organized factory sector are easily
visible and the implications of government policy (both domestic and global) can be easily
assessed since the data are available on a continuous time series Considering these facts an
attempt has been made in the following sections to analyse the leather industry (organized
factory sector/ registered manufacturing) in India.
3.2 The Key Features of the Registered Factory Sector
A brief look at the leather sector (registered manufacturing) at the all India level suggests that
the industry has not experienced any significant growth in terms of Gross Value Added the
years (Table 3.1). However, compound annual growth rate of employment during 1980-81 to
2005-06 has shown positive trends at an annual rate of 2.36 per cent. By 1990-91 total
employment, value of output and value added declined in absolute terms as compared to
1980-81 levels.
In the 1990s however, the industry has recovered. A comparison between the levels of 200001 and 2005-06 reveals that the value added and value of output has started showing signs of
recovery (Table 3.1). The number of workers and the number of factories have also increased
considerably during this period.
Thus, the above analysis suggests that the organized leather industry in India has started
showing signs of growth in the recent years as compared to nineties. This probably indicates
that the measures adopted during economic liberalization did help the organized segment of
leather manufacturing in India.

*(Factory is one that is registered under sections 2m (i) and 2m (ii) of the Factories Act, 1948. The sections 2m
(i) and 2m (ii) refer to any premises including the precincts thereof (a) whereon ten or more workers are
working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing
process is being carried on with the aid of power, or is ordinarily so carried on; or (b) whereon twenty or more
workers are working or were working on any day of the preceding twelve months, and in any part of which a
manufacturing process is being carried on without the aid of power, or is ordinarily so carried on).

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Table 3.1: Characteristics of Registered Leather Industry in India (Value in Rs. Lakhs,
others in Numbers)
Indicators

1980-81

1990-91

2000-01 2003-04

2004-05

2005-06

Number of Factories

1298

1782

2378

2337

2293

2444

Number of Workers

97305

92915

114467

118154

126604

146704

Gross Value Added (Constant


Prices 1993-94=100)

138897

127438

88996

92673

87899

117894

Value of Output (Constant


Prices 1993-94=100)

718276

407316

637945

649808

657968

783405

Source: Computed from Annual Survey of Industries, CSO, Summary results of Factory

Sector

3.3 Data and Variables


Gross value added (net value added + depreciation) has been considered for the estimation of
productivity ratios. In order to eliminate the price effect from the increasing value added, the
gross value added figures have been deflated by using the whole-sale Price Index (WPI).
From the WPI, the price index for the leather and leather products at 1993-94 base prices has
been taken into account for deflating the data on gross value added since it covers all
categories of the products from the sector.
3.4 Growth Rate Analysis of Leather Industry
A period wise growth analysis of the organized leather industry in India has been presented in
table 3.2

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Table 3.2: Growth of Organized Leather Industry

Indicators

Period I
(1980-81 to
1990-91)

Period II
(1990-91 to
2000-01)

Period III
(2000-01 to
2005-06)

Compound Annual Growth Rate (CAGR) (%)

Gross Value Added (At Constant Prices)

-0.86

-4.39

5.79

Value of Output (At Constant Prices)

-5.51

5.77

4.19

No. of Factories (Nos)

3.22

3.67

0.55

Workers (Nos)

-0.46

2.64

5.09

Note: Labour Productivity has been estimated as GVA/Number of Workers


Source: Computed from Annual Survey of Industries, CSO, Summary results of Factory Sector

Value of Output (at constant prices) has been found increasing continuously during the
liberalization period. Though eighties was a decade of better industrial growth, the leather
industry did not perform well resulting in negative growth rates. Nevertheless, the sector has
experienced a great deal of recovery in the decade and a half of liberalization. Internal
liberalisation and trade reforms have certainly helped the leather industry to gain some market
share in the world market. However, the extent to which Indian leather industry can survive or
grow or emerge as a leader depends on its competitive potential. Since, the leather industry,
be it organized or unorganized, across the globe is basically labour intensive, the
improvement in labour productivity will primarily govern the competitiveness of the sector.
3.5 Labour Productivity Growth
Table 3.2 has given an overall picture of labour productivity growth in the leather industry.
However, it is pertinent to have a look at the labour productivity across various broad
segments of the leather industry in India. Labour productivity growth across different
segments of leather industry has been presented in table 3.3.

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Table 3.3: Labour Productivity Growth in Indian Leather Industry: Segmentwise


Analysis
Industry

Code

Period I:
1980-81 to 198990

Period II:
1990-91 to 199900

Tanning and
1911
-1.39
4.99
Dressing of Leather
Manufacture of
Luggage,
Handbags, and the
1912
11.76
4.70
like, Saddlery and
Harness
Manufacture of
1920
-11.20
4.33
Footwear
Entire Leather
1911+1912+19
-9.40
4.36
Industry
20
Note: Labour Productivity has been estimated as GVA/Number of workers

Period III:
2000-01 to 200405
3.79

0.36

-4.95
-2.31

Source: Computed from Annual Survey of Industries, CSO, Summary results of Factory Sector

It may be seen from tables 3.3 that labour productivity in different segments of the leather
industry has been growing consistently since 1990-91. Of course, the only exception has been
the manufacture of Luggage, Handbags and the like, Saddlery etc. Unlike other sectors it did
not experience negative growth in labour productivity in the eighties. And also this segment
had experienced a decline in growth rate during nineties while all other segments improved in
terms of labour productivity growth. Interestingly, this sector exhibits the highest growth in
labour productivity in the recent years. The contrasting performance of manufacture of
Luggage, Handbags and the like, Saddlery etc. among other segments the leather industry in
India could be due to the fact that this segment prominently focus on the domestic market.
In the recent years, riding on domestic growth and opportunities of globalization, various
segments of Indian leather industry have started performing well, particularly in terms of
growth in labour productivity. However, the major concern is that the footwear sector, the
pride of Indian leather industry in the global market trails behind other segments in terms of
labour productivity growth.
Hence, in order to enhance the competitive edge of the leather industry, it is important that
labour productivity need to be improved considerably across all segments of the industry
especially for the footwear segment.
A recent study on labour intensity and employment potential of Indian manufacturing
(ICRIER, 2008) estimates employment growth in this sector. The study reports consistent
decline in employment from around 19 percent ( 1990-95) to about 5 percent (2000-2003). In
addition, the L/K ratio is also seen declining- 1.27(1990-95), 0.89(1996-99) and 0.58 (200003).

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3.6 Partial and Total Factor Productivity Analysis of Leather Industry


In this section we analyse partial productivities (labour and capital) and total factor
productivity growth (TFPG). The detailed methodology adopted for the estimation of partial
(labour & capital) and TFPG are given in Annexure 3. The estimated partial productivity
ratios for both labour and capital factor inputs are given in table 3.4.
Table 3.4: Productivity Estimates for Labour and Capital inputs
Year

Capital productivity
(at Per Rupee Invested)

Labour Productivity
(at Per Person Employed)

1995-96

0.64

60976

1996-97

0.63

64866

1997-98

0.83

79710

1998-99

0.62

79748

1999-00

0.68

88107

2000-01

0.49

64385

2001-02

0.64

70170

2002-03

0.66

60553

2003-04

0.75

63490

2004-05

0.73

58647

2005-06
0.84
67797
Note: Productivity has been estimated as GVA/Factor imput
Source: Estimated from ASI- Summary results of factory sector, CSO.
From table 3.4 it may be noted that partial productivity estimations for labour and capital
productivity at the all India level have reported wide fluctuations during 1995-96 to 2005-06
period. Capital productivity was found fluctuating in the range of Rs. 0.49 to Rs. 0.84 while
labour productivity was found in the range of Rs. 58647 to Rs. 88107 during 1995-96 to
2005-06.
Table 3.5 provides year on year growth rate estimations for capital, labour and total factor
productivity growth. It may be noted that capital productivity growth during 1995-96 to 200001 was quite negligible while 2000-01 to 2005-06 period exhibited negative growth at the rate
of -5% per annum. However, labour producyivity growth reported positive growth for both
periods at 2% and 1% respectively. In the case of Total Factor Productivity Growth we find
annual average growth rate at 1% during 1995-96 to 2000-01 and 2% during 2000-01 to 200506.

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Table 3.5: Labour, Capital and Total Factor Productivity Growth (%)

Year
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
Average for the
Period 1996-97 to
2000-01
Average for the
Period 2000-01 to
2005-06

Capital
Productivity
Growth
--1.93
31.82
-25.55
9.25
-27.55
30.36
2.81
14.57
-2.84
14.40

Labour
Productivity
Growth
-6.38
22.88
0.05
10.48
-26.92
8.98
-13.70
4.85
-7.63
15.60

Total factor
Productivity
Growth
-0.99
-9.51
14.52
-3.79
10.80
-19.71
8.21
-4.39
3.75
14.46

-2.79

2.57

2.60

5.23

0.34

4.93

Source: Computed from Annual Survey of Industries, CSO, Summary results of Factory Sector

Since the annual growth rates exhibit wide fluctuations, for getting a better picture of the
growth rate analysis it has been depicted in an index form in table 3.6. Among the three
growth rates capital productivity has reported the highest index at 145.34 by 2005-06, while
labour productivity has reported 120.97 and Total Factor Productivity has grown to 115.33.

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Productivity & Competitiveness of Indian Manufacturing Leather & Leather Products Sector

Table 3.6: Index of Labour, Capital and Total Factor Productivity Growth Rates
Year

Capital

Labour

Total factor
Productivity
Growth Index

1995-96

100.00

100.00

100.00

1996-97

98.07

106.38

100.99

1997-98

129.89

129.26

91.48

1998-99

104.34

129.31

106.00

1999-00

113.59

139.79

102.21

2000-01

86.04

112.87

113.01

2001-02

116.40

121.85

93.30

2002-03

119.21

108.15

101.51

2003-04

133.78

113.00

97.12

2004-05

130.94

105.37

100.87

2005-06

145.34

120.97

115.33

Source: Computed from Annual Survey of Industries, CSO, Summary results of Factory Sector

Though TFP is lower as compared to Capital and Labour Productivity Growth, it may be
noted that technology plays a significant role in the growth of leather and leather products
sector in India. Therefore, it may be noted that technology upgradation schemes are vital for
making the sector more productive and competitive in the global setting.
Index of Labour, Capital and Total Factor Productivity Growth Rates

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Productivity & Competitiveness of Indian Manufacturing Leather & Leather Products Sector

CHAPTER IV
EXPORT TRENDS IN LEATHER AND LEATHER PRODUCTS
4.1 Introduction
The importance of exports in the growth of an industry cannot be underestimated in the era of
globalization. The exports of leather and leather products to the rest of the world have
registered a steady increase over the years as it increased from 1279.19 million US $ in 199192 to 3433.30 million US $ by 2007-08 (Table 4.1).
The global trade in leather and footwear is expected to further increase after the abolition of
quota regime in January, 2005. The relative shares of the components have changed over the
years. The share of leather footwear has declined over the years from 36.56% to 33.92% and
even the share of saddlery and harness has registered a small increase over the years from
1.20% in 1995-96 to 3.08% in 2007-08. The shares of leather garments and leather footwear
components have registered a steep decline over the years and the share of finished leather
and leather goods has declined marginally in the past few years but ultimately increased in
2007-08 as compared to 1995-96.
Table 4.1: Composition of Indias Leather Exports: 1991-92 to 2007-08
Product
Categories
Leather footwear
S hare %
Leather goods
Share %
Finished leather
Share %
Leather garments
Share %
Leather footwear
components
Share %
Saddlery and
Harness
Share %
Total leather
products

1991-92
467.26
36.56
810.93
63.44
-----

US $ Million
1995-96 2000-01 2003-04 2005-06 2006-07 2007-08
340.92 381.99 553.42
786.65 950.90 1164.39
19.42
19.61
25.56
29.96
31.89
33.92
363.14 441.09 539.58
649.04 690.66 785.33
20.69
22.65
24.92
24.72
23.16
22.87
371.85 382.11 556.09
605.97 688.35 767.31
21.18
19.61
25.69
23.08
23.09
22.35
414.21 461.21 301.29
328.39 306.98 344.16
23.60
23.68
13.91
12.50
10.30
10.03

--

243.33

238.48

161.38

179.01

212.65

--

13.86

12.24

7.45

6.81

7.13

--

21.38

42.73

52.75

76.39

81.85

105.87

--

1.20

2.19

2.43

3.08

1279.19

1754.84 1947.61 2164.51

266.24
7.76

2625.46 2981.79 3433.30

Source: Foreign Trade and Balance of Payments, CMIE (various issues), Annual Report
DIPP, Ministry of Commerce & Industry (various issues)
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Productivity & Competitiveness of Indian Manufacturing Leather & Leather Products Sector

Indias leather and leather products exports are growing at the rate of 6.80% during 1991-92
to 2007-08. Table 4.2 provides the direction of trade with respect to leather and leather
products from India. Germany, USA, UK, Italy and Hong Kong are the major destinations of
Indias exports of leather and leather based products.
Though the volume of Leather export from India has been increasing during 1991-92 to 200708, the shares of Germany, USA and Australia have decreased whereas the shares of UK,
Italy, Hong Kong, Spain, France, Netherlands and UAE have increased over time. Germany
remains the major importer of leather and leather based products though its share in Indias
total exports is decreasing.
Impact on Exports due to Financial Turmoil: As per compilation of export data by ouncil
of Leather Exports, based on Customs Monthly Data, export of leather & leather products for
the period April-October 2008 was USD 2,177 million as compared to USD 1,914 million in
the corresponding period of last year, registering a positive growth of 14% in USD. In Rupee
terms, the total export from India increased to Rs. 94,852 million in the period from April
October, 2008 as compared to Rs. 77,869 million in the period from April-October, 2007
growing at 22%. The above growth in exports of leather and footwear industry in both Rupee
and USD in the first six months of FY 2008-09 shows that exports of the industry has not
been impacted by financial turmoil in period from April-October, 2008. The impact of
financial turmoil on the exports of leather and footwear industry is expected to be felt in the
last two quarters of FY 2008-09.

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Productivity & Competitiveness of Indian Manufacturing Leather & Leather Products Sector

Table 4.2: Direction of Indias Leather Exports: 1991-92 to 2007-08


Country
Germany
Share %
UK
Share %
USA
Share %
Italy
Share %
Hong Kong
Share %
Spain
Share %
France
Share %
Netherlands
Share %
UAE
Share %
Australia
Share %
Other
countries
Share %
World Total

1991-92
280.92
21.92
146.01
11.42
177.54
13.88
124.38
9.73
30.55
2.39
27.88
2.18
61.7
4.82
21.81
1.70
5.99
0.46
25.04
1.95

1995-96
400.62
22.83
197.89
11.27
295.05
16.81
221.05
12.59
59.5
3.39
50.79
2.89
88.54
5.04
38.42
2.18
12.23
0.69
40.42
2.30

US$ Million
2000-01 2003-04
306.02 322.18
15.71 14.88
265.88 238.1
13.65
11
342.83 245.24
17.60 11.33
238.87 277.2
12.26 12.80
98.37 227.06
5.05 10.49
100.33 158.43
5.15
7.31
88.67 107.65
4.55
4.97
55.52 57.01
2.85
2.63
17.96 34.73
0.92
1.65
27.95 31.56
1.43
1.45

376.38
29.44
1278.2

350.33
19.96
1754.84

405.21 465.35
20.80 21.49
1947.61 2164.51

2005-06 2006-07 2007-08


357.20
397.94 486.91
13.24
13.58
18.77
335.61
349.24 407.64
12.44
11.92
15.71
310.40
302.79 304.30
11.51
10.33
11.72
308.61
395.03 475.60
11.44
13.48
18.33
251.42
265.09 267.99
9.32
9.04
10.33
198.60
179.62 210.42
7.36
6.13 8.107.
140.73
168.18 194.27
5.22
5.74
7.49
81.94
97.68 133.10
3.04
3.33
5.13
48.48
53.62
64.87
1.80
1.83
2.50
42.80
37.82
49.52
1.59
1.29
1.91
--2075.79

----2247.01 2594.52

Source: Foreign Trade and Balance of Payments, CMIE (various issues), Annual Report DIPP,
Ministry of Commerce & Industry (various issues)

4.2 Export of Finished Leather


Indias export of finished leather has been growing at the annual rate of 6.42% from 1993-94
to 2007-08. Table 4.3 provides the direction of trade with respect to finished leather products
from India. Hong Kong is one of the major export destinations of Indias finished leather
products. Hong Kong cornered the largest share (42.25%) of Indias finished leather exports
in 2007-08. There has been a rise in both absolute and relative shares of most of countries in
exports of Indias finished leather except USA, Germany, France and Spain have registered a
marginal fall in recent years. Also, volume of imports by Germany, France and USA has
decreased over the years.
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Productivity & Competitiveness of Indian Manufacturing Leather & Leather Products Sector

Table 4.3: Indias exports of finished leather: Destination wise (US$ Million)
Country
1993-94 1997-98 2000-01 2003-04 2005-06 2006-07 2007-08
Hong Kong
45.93
47.75
90.43
199.5
242.91
257.65 256.21
Share %
17.01
16.12
23.66
35.87
38.18
37.47
42.25
Italy
56.73
64.46
85.7
85.68
86.19
115.44 133.53
Share %
21.01
21.76
22.42
15.40
13.55
16.79
22.02
China
3.53
3.18
8.41
21.61
34.86
37.20
48.25
Share %
1.30
1.07
2.20
3.88
5.48
5.41
7.95
Germany
26.58
29.37
20.96
22.78
34.56
24.20
32.73
Share %
9.84
9.84
5.48
4.09
5.43
3.52
5.39
Korea Republic
3
2.96
15.66
24.3
33.51
33.14
27.64
Share %
1.11
0.99
4.09
4.36
5.27
4.82
4.55
Spain
15.82
26.71
29.94
35.97
22.53
20.56
26.62
Share %
5.85
9.01
7.83
6.46
3.62
3.43
4.38
Vietnam
-0.68
2.27
22.06
23.03
23.57
34.53
Share %
-0.22
0.59
3.96
3.62
3.43
5.69
Malaysia
1.25
3.29
3.3
7.52
13.51
22.60
29.00
Share %
0.46
1.11
0.86
1.35
2.12
3.29
4.78
France
13.67
16.34
13.4
15.28
13.09
11.49
9.74
Share %
5.06
5.51
3.50
2.74
2.06
1.67
1.66
USA
16.96
10.9
12.43
7.87
12.24
9.68
8.22
Share %
6.28
3.68
3.25
1.41
1.92
1.41
1.36
Other countries
86.52
90.55
99.61
113.52
---Share %
32.04
30.57
26.06
20.41
---World Total
269.99
296.19
382.11
556.09
516.09
555.53 606.47
Source: Foreign Trade and Balance of Payments, CMIE (various issues), Annual Report
DIPP, Ministry of Commerce & Industry (various issues)
4.3 Export of Leather Footwear
Indias export of leather footwear has been growing at the rate of 3.50% during 1991-92 to
2007-08. The leading importer of Indian leather footwear product is UK followed by
Germany, USA, Italy and France (Table 4.4). The volume of imports by all the major
countries has been increasing over time. The share of UK has been declining since 2000-01
showing a slight increase in recent years. Still it is a major importer of Indias leather
footwear. The shares of USA has been declining in Indias leather footwear exports while
Germanys share has increased marginally. Italy, France, Spain, Netherlands, Belgium and
UAE have increased their relative shares in Indias exports of leather footwear.

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Productivity & Competitiveness of Indian Manufacturing Leather & Leather Products Sector

Table 4.4: Indias exports of leather footwear: Destination wise (US $ Million)
Country
UK
Share %
Germany
Share %
USA
Share %
Italy
Share %
France
Share %
Spain
Share %
Netherlands
Share %
Belgium
Share %
UAE
Share %
Denmark
Share %
Other countries
Share %
World Total

1991-92

1995-96

2000-01

2003-04

2005-06

2006-07

2007-08

54.18
11.59
80.45
17.21
81.33
17.4
40.65
8.69
13.99
2.99
0.72
0.15

56.31
16.51
67.56
19.81
97.21
28.51
8.28
2.42
11.2
3.28
1
0.29

100.82
26.39
48.89
12.79
104.09
27.24
12.83
3.35
19.49
5.1
3.87
1.01

124.62
22.51
110.81
20.02
80.7
14.58
58.27
10.52
37.68
6.8
19.53
3.52

164.15
20.78
140.85
17.44
121.14
15.00
91.00
11.28
56.93
7.05
43.27
5.36

188.04
20.52
174.47
19.04
116.40
12.70
130.75
14.27
74.28
8.11
46.07
5.03

215.92
21.93
203.43
20.66
131.61
13.37
166.27
16.89
86.77
8.81
56.22
5.71

3.78
0.8
3.64
0.77
2.92
0.62
11.98
2.56
173.62
37.15
567.19

5.95
1.74
1.76
0.51
5.49
1.61
2.6
0.76
83.56
24.51
440.87

11.16
2.92
5.04
1.31
8.62
2.25
4.83
1.26
62.35
16.32
481.93

17.61
3.18
8.13
1.46
11.66
2.1
10.55
1.9
73.86
13.34
653.35

29.51
3.65
20.08
2.49
19.99
2.47
16.01
1.98

43.35
4.73
20.94
2.28
22.07
2.41
13.29
1.45

69.34
7.04
29.30
2.98
25.73
2.61

--789.97

--916.43

----984.59

Source: Foreign Trade and Balance of Payments, CMIE (various issues), Annual Report DIPP,
Ministry of Commerce & Industry (various issues)

4.4 Export of Leather Goods


Indias export of leather goods have been decreasing at the rate of 1.58% during 1991-92 to
2007-08 periods. Table 4.5 provides the direction of trade with respect to leather goods from
India. Germanys position as the major destination of Indias leather goods exports during the
early 90s has changed drastically. It was displaced by UK as the leading importer of Indias
leather goods. The imports by Germany, Italy and France have increased recently from 200607 to2007-08 but finally have shown a decrease in absolute terms along their shares when
compared with 1991-92. USA, Spain, Netherlands, Australia, UAE and Belgium have
increased their imports from India in absolute as well as relative terms.

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Productivity & Competitiveness of Indian Manufacturing Leather & Leather Products Sector

Table 4.5: Indias Exports of Leather Goods: Destination wise (US $ Million)
Country
USA
Share %
UK
Share %
Germany
Share %
Spain
Share %
Italy
Share %
Netherlands
Share %
France
Share %
Australia
Share %
UAE
Share %
Belgium
Share %
Other countries
Share %
World Total

1991-92 1995-96

2000-01 2003-04

2005-06

2006-07

2007-08
121.43
19.35
131.62
20.97
121.43
19.35
59.14
9.42
56.27
8.97
36.13
5.76
34.91
5.56
27.96
4.46
25.10
4.00
13.54
2.16

96.21
11.86
91.83
11.32
199.8
24.63
27.15
3.34
83.75
10.32
18.03
2.22
47.7
5.88
17.78
2.19
3.06
0.37
6.13
0.75

78.37
21.58
33.86
9.32
117.25
32.28
8.83
2.43
13.68
3.76
14.08
3.87
14.83
4.08
15.8
4.35
3.49
0.96
5.91
1.62

107.89
24.45
46.14
10.46
85.95
19.48
18.26
4.13
23.72
5.37
19.88
4.50
19.36
4.38
10.96
2.48
6.46
1.46
6.97
1.58

98.87
18.32
63.59
11.78
92.38
17.12
40.03
7.41
36.61
6.78
22.32
4.13
22.19
4.11
16.99
3.14
16.68
3.09
9.24
1.71

116.00
17.57
110.60
16.76
91.07
13.80
51.19
7.76
46.32
7.02
30.68
4.65
26.56
4.02
25.62
3.88
22.68
3.44
10.25
1.55

124.30
18.01
111.25
16.12
99.12
14.34
52.18
7.56
49.72
7.20
31.43
4.55
30.75
4.46
21.28
3.08
21.02
3.04
11.51
1.67

219.49
27.06
810.93

57.04
15.70
363.14

95.5
21.65
441.09

120.68
22.36
539.58

--660.07

--690.19

Source: Foreign Trade and Balance of Payments, CMIE (various issues), Annual Report
Ministry of Commerce & Industry (various issues)

627.53
DIPP,

4.5 Export of Leather Garments


Indias export of leather garments have been decreasing at a rate of 2.46% during 1995-96 to
2007-08. Table 4.6 provides the direction of trade with respect to leather garments from
India. Germany is the leading importer of leather garments in 2008-09. Germany, Italy, USA,
France, UK and Netherlands have all started importing less of Indian leather garments over
the years. USAs import from India increased once during 2000-01 otherwise it has declined
over the period. Surprisingly, Spain and Canada has experienced drastic increase in exports
from India in this sector.

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Productivity & Competitiveness of Indian Manufacturing Leather & Leather Products Sector

Table 4.6: Indias exports of leather garments: Destination wise (US$ Million)
Country

1995-96

1998-99

2000-01

2003-04

2005-06

2006-07

2007-08

Spain
Share %
Germany
Share %
Italy
Share %
USA
Share %
France
Share %
UK
Share %

5.47
1.32
122.05
29.46
68.21
16.46
73.53
17.75
32.67
7.88
41.21
9.94

19.82
5.18
114.76
30.04
60.7
15.72
47.02
12.31
28.12
7.36
38.81
10.16

40.07
8.68
93.88
20.35
54.27
11.76
102.58
22.24
24.81
5.37
54.31
11.77

45.36
15.05
57.67
19.14
53.49
17.75
46.86
15.55
16.8
5.57
23.18
7.69

60.2
18.06
55.67
16.71
47.36
14.21
45.11
13.54
22.78
6.84
21.41
6.42

42.91
13.9
53
17.17
52.3
16.64
36.72
11.89
23.34
7.56
22.39
7.25

47.61
17.12
68.81
24.75
58.34
20.98
27.75
9.98
27.11
9.75
23.10
8.31

Canada
Share %
Denmark
Share %

2.8
0.67
9.08
2.19

3.29
0.86
9.22
2.41

8.34
1.8
15.77
3.41

5.93
1.96
4.77
1.58

10.06
3.02
10.15
3.05

8.53
2.76
11.32
3.67

8.94
3.22

13.57
3.27
2.12
0.51

16.16
4.23
2.99
0.78

14.32
3.1
2.19
0.47

7.33
2.43
4.04
1.34

8.94
2.68
6.06
1.82

10.89
3.53
5.14
1.67

11.26
4.05
5.11
1.84

43.5
10.5

41.05
10.74

50.67
10.98

35.86
11.9

---

---

47.61
17.12

414.21

381.94

461.21

301.29

333.25

308.78

Netherlands
Share %
Belgium
Share %
Other countries
Share %
World Total

Source: Foreign Trade and Balance of Payments, CMIE (various issues), Annual Report
Ministry of Commerce & Industry (various issues)

278.03
DIPP,

4.6 Export of Leather Footwear Components


Indias export of leather footwear components have been decreasing at a rate of 2.27% during
1995-96 to 2007-08. (Table 4.8) Italy, Germany and France are the major importers of Indian
Leather Footwear components. Despite this decline Indias exports of leather footwear has
increased to most of the countries except U.K. and Austria in both absolute as well as relative
terms. Though shares of Spain, Portugal and Slovakia has declined in recent years but their
shares have increased drastically from 1991-92 to 2007-08.

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Productivity & Competitiveness of Indian Manufacturing Leather & Leather Products Sector

Table 4.7: Indias Exports of Leather Footwear Components: Destination Wise (US $
Million)
Country

1995-96

1998-99

2000-01

2003-04

2005-06

2006-07

2007-08

Italy

54.11

58.06

61.04

41.44

34.84

44

56.24

Share %

22.23

24.08

25.59

25.67

19.09

20.7

33.39

Germany

55.71

53.05

48.7

27.66

24.11

34.17

40.56

Share %

22.89

22

20.42

17.13

13.21

16.08

24.08

UK

47.31

57.94

50.18

17.2

21.71

12.5

18.07

Share %

19.44

24.03

21.04

10.65

11.89

5.88

10.72

1.6

4.05

7.01

15.65

18.88

14.91

17.29

Share %

0.65

1.68

2.93

9.69

10.34

7.02

10.26

Portugal

7.42

11.39

17.88

12.9

16.35

15.07

--

Share %

3.04

4.72

7.49

7.99

8.96

7.09

--

France

4.38

9.93

8.44

10.96

14.58

21.17

26.53

1.8

4.11

3.53

6.79

7.98

9.96

15.75

Switzerland

3.88

6.67

4.95

4.42

7.33

7.99

8.2

Share %

1.59

2.76

2.07

2.73

4.01

3.76

4.86

Slovakia

0.05

0.17

3.89

3.83

7.13

14.93

--

Share %

0.02

0.07

1.63

2.37

3.91

7.03

--

Austria

5.2

2.09

2.86

5.28

3.13

1.52

Share %

2.13

0.86

1.99

3.09

2.89

1.14

0.90

Hungary

--

--

0.05

1.82

4.57

5.09

--

Share %

--

--

0.02

1.12

2.5

2.4

--

Other
countries

63.67

37.71

33.48

20.5

--

--

--

Share %

26.16

15.64

14.03

12.7

--

--

--

243.33

241.06

238.48

161.38

182.55

212.51

168.41

Spain

Share %

World Total

Source: Foreign Trade and Balance of Payments, CMIE (various issues), Annual Report DIPP,
Ministry of Commerce & Industry (various issues)
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4.7 Export of Saddlery and Harness


Indias export of saddlery and harnesses has been increasing at a rate of 8.96% in the period
of 1995-96 to 2007-08. Table 4.8 provides the direction of trade with respect to saddlery and
harness from India. Indias volume of exports of saddlery and harness to all the ten major
importing nations has been increasing in the period 1995-96 to 2007-08 but the shares of
USA, Netherlands and Australia have been declining in Indias saddlery and harness exports.
Despite this, there is a phenomenal increase in the growth rate of Indias exports of saddlery
and harness indicates that India is capable of diversifying and exporting to more and more
countries.
Table 4.8: Indias Exports of Saddlery and Harness: Destination Wise (US$ Million)
Country
UK
Share %
USA
Share %
Germany
Share %
France
Share %
Sweden
Share %
Netherlands
Share %
Italy
Share %
Spain
Share %
Australia
Share %
Other
countries
Share %
World Total

1995-96
1.68
7.85
5.42
25.35
3.95
18.47
2.27
10.61
0.83
3.88
1.71
7.99
0.54
2.52
0.51
2.38
1.1
5.14
3.37

1998-99
2.73
8.23
6.33
19.09
8.42
25.39
2.42
7.3
1.76
5.3
2.76
8.32
0.78
2.35
0.65
1.96
1.47
4.43
5.81

2000-01
8.4
19.65
8.92
20.87
7.64
17.87
3.17
7.41
1.63
3.81
1.9
4.44
1.32
3.08
1.18
2.76
2
4.68
6.56

2003-04
5.93
11.24
8.92
16.9
10.88
20.62
4.74
8.99
2.27
4.3
2.91
5.51
1.73
3.27
1.91
3.62
1.97
3.73
11.48

2005-06
14.91
24.24
13.91
22.61
10.94
17.79
6.80
11.06
3.74
6.08
3.68
5.98
2.80
4.55
2.53
4.11
2.20
3.58

2006-07
12.49

6.34

2007-08
16.24
19.26
13.36
15.84
19.75
23.42
9.21
10.92
6.37
7.55
5.59
6.63
4.92
5.83
3.54
4.20
5.35
6.34

--

--

16.24

15.76

17.52

15.35

21.76

--

--

19.26

21.38

33.15

42.73

52.75

61.51

65.61

84.33

19.04
14.82
22.59
13.09
19.95
7.14
10.88
4.70
7.16
3.38
5.15
2.83
4.31
3.00
4.57
4.16

Source: Foreign Trade and Balance of Payments, CMIE (various issues), Annual Report DIPP,
Ministry of Commerce & Industry (various issues)

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4.8 Major Leather Products Exporting Countries in the World


Table 4.9 gives the major leather and leather products exporting countries and their share in
world trade. China corners the largest share among all the nations in the export of leather and
leather product. Its share has been rising steadily from 17.77% in 2000 to 32.11% in 2006.
Though Italys share has been steadily declining it still remains a major exporter of leather
and leather products next only to China. Brazils exports have been declining steeply from
2000 to 2006. Shares of countries like Korea Republic, Indonesia and Taiwan have been
steadily declining.
Table 4.9: Export Share of Major Leather Producing Countries in the World

Country

Export Share
As a percentage (%) of World Export
2000
2004
2006

China

17.77

21.99

Italy

15.89

15.81

Brazil

3.14

3.39

0.34

India

2.54

2.44

3.14

Romania

1.09

1.71

0.47

Korea Republic

3.19

1.63

0.29

Indonesia

2.49

1.53

0.41

Taiwan

1.97

1.26

0.32

51.92
100.00
77331.26

50.24
100.00
97606.18

52.13

Rest of the world


World Total
Total Volume (US$ Million)

32.11
10.74

100.00
--

Source: World Statistics, ITC, Geneva, Indias exports, DGCI & S

4.9 World Leather Exports Growth


The volume of world trade in leather and leather products has been steadily increasing. The
growth rate during the 2004-06 was 55.48% compared to 5.99% growth in the pre 2000-04
time period (Table 4.10). This shows that there was impressive growth in world trade of
leather and leather manufactures in the post 2000 period.
Indian exports growth rate has shown a marginal increase in the post 2004 period and its
growth rate lags behind that of China, which registers an impressive growth rate of 11.79% in
the pre 2004 period and 28.02% in the post 2004 period. Romania is another country, which
registers an impressive growth rate of 18.78% and 21.63% during the time period 2000-04
and 2004-06 respectively. Italy is another nation which has shown an impressive growth rate
of 16.80% during 2004-06 as compared to 5.86% during 2000-04. But India is better off than
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some nations like Brazil and Taiwan, which have been suffering from negative growth rates
for both the post 2004 period.
Table 4.10: Growth in World Trade of Leather and Leather Products
US $ Million

Countries
India
China
Italy
Brazil
Romania

CAGR %

2000

2004

2006

1963.55
13741.54
12286.64
2427.39

2379.44
21464.30
15432.76
3307.49

2621.00
35182.24
21056.75
2382.79

4.91
11.79
5.86
8.04

4.97
28.02
16.80
-15.12

839.64

1671.43

2473.06

18.78

21.63

-10.42
-6.17
-5.29
5.99

13.38
12.21
-0.70
55.48

Korea Republic
2465.80
1587.48
2040.80
Indonesia
1923.01
1490.06
1876.37
Taiwan
1526.23
1227.81
1210.46
World trade
77331.26
97606.18
235956.92
CAGR= Cumulative Average Growth Rates
Source: World Statistics, ITC, Geneva, Indias exports, DGCI & S

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CHAPTER V
GLOBALIZATION AND PROSPECTS FOR LEATHER INDUSTRY
5.1 Introduction
The post liberalization era has opened up a plethora of opportunities for the Indian leather
industry. Along with China and Vietnam, India stands to gain a bigger share of global market.
Since global players are looking at new sourcing options for their trade in leather products.
Leading brands from the US and Europe, are planning to source leather and leather products
from India The Hindu Business Line, February 04, 2005). Global players who participated at
the India International Leather Fair, 2005, emphasized on India as sourcing destination for
their trade in leather products.
The domestic producers have also realized the opportunities ahead. In fact, almost every
player in the organized sector is on an expansion spree, and many are doubling capacities.
Currently India has a share of nearly 2.3 per cent i.e. 2 billion in the global trade of leather
and leather products of nearly US $ 88 billion. Moreover, India has significant cost
advantages in terms of labour and raw materials in comparison to the other developed
countries which are evident from the interest shown by the global players as mentioned above.
Taking the current meager share in global trade and the cost advantages into account it may
be said that Indian leather industry has a significant potential for higher share in global trade.
In addition to the global market, Indian leather industry is yet to capture the existing untapped
potential in the domestic market. India has a large and growing consumer class (annual
income > US$ 449), estimated to constitute nearly 90 million households by 2006 - 07,
having a Compound Annual Growth Rate (CAGR) around 12%. Global players in the leather
business, big or small are today focusing increasingly on India's domestic market which is
already, witnessing numerous developments. Not only quantity-wise but also quality wise
there has been significant development in the Indian leather sector: The number of people
within the country who are today ready to buy high priced shoes, in the range of US $ 30 to
US $ 45 a pair, has gone up significantly. Besides, the retail revolution is also boosting
availability of goods, and the market for branded footwear (www.tdctrade.com (2006)
International Market News, May).
Hence, looking at the global trade scenario and domestic demand it may be said that the
Indian leather industry has the potential to grow leaps and bounds in the future years to come.
And hence it has an enormous potential for offering huge employment opportunity
particularly in rural and semi-urban areas. It is estimated that the potential for employment
across all skills to be in the tune of semi-skilled and unskilled labourers - 92%; technical
supervisory, shop floor - 7%; entrepreneurs, senior managers and technologists - 1% (CII2006).
However, the extent to which the growth potentials of Indian leather industry can be realized
depends its competitive strength vis-a vis its competitors. Otherwise, the absence of required
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competitive strength in the era of globalization will turn a producing economy into a
consuming one only.
5.2 Competitive Strengths of Indian Leather Industry
The perception about growth potential of Indian leather industry draws its inspiration from
various sources constituting the strength of the industry. Some of the important ones could be
the followings.
(a) Raw Material Source: Fortunately, the industry has access to one of the cheapest and
abundant source of raw material. The livestock is the raw material for the leather
industries. Cattle, buffaloes, goat and sheep are the four live stock species which provide
the basic source of raw materials for the leather industry. As per the latest live stock
census i.e. 17th live stocks census of India-2003. India has 194 million cattle, 70 million
buffaloes, 95 million goats and 48 million sheep population. Also, India ranks first
among major livestock holding countries in the world.
(b) In fact, India has the capacity to fulfill 10% of the global leather requirement1. Moreover,
not only the country has access to abundant supply of raw materials but also the available
raw material is diverse in variety. The annual availability of 218 million pieces of hides
and skins is the main strength of the industry. Quality wise, some of the goat/calf/sheep
skins available in India are regarded as specialty products commanding a good market.
Thus, the rich endowment of raw material for the production of leather puts the country
on a competitive footing.
(c) Availability of Labour: Along with the rich endowment of raw materials the industry has
also access to large supply of labour. Along with the large supply of labour, the industry
has access to abundant of traditional skills in tanning, finishing and manufacturing
downstream products. Thus, the large supply of skilled labour which has resulted in
relatively low wage rate certainly puts the industry in a cost advantageous position vis-vis its competitors.
(d) R & D facilities: Over the years through government support the industry has been able
to develop its R & D facilities considerably. Though there is yet much to be done in order
to meet the challenges of globalization, the industry has established a sound base for the
same.
(e) Apart from the above discussion on the competitive strengths of Indian leather industry it
is essential to have a brief look at the estimated picture of Indias export competitiveness
in leather and leather products.

Shobha Mathur, Moving up the value chain, Industrial Economist, February 15, 2005

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5.3 Indian Leather Industry: Constraints


Despite the fact that Indian leather industry has comparative advantage owing to factors like
abundance of raw material, cheap source of labour, traditional skills, R&D facilities etc., there
is no guarantee that it can achieve its growth potentials since it has been facing several
hurdles. Some of the hurdles could be listed as follows.
Firstly, on the quality front, there continues to be acute shortage of good quality finished
leather. As a result the industry is dependent on import from china and other countries. Lack
of adequate product quality adversely egested India exports complement appreciation of
rupee.
Secondly, on the technology front, most of the existing tanneries use outdated technology
which inhibits them from producing good quality leather in spite of access to quality raw
materials such as hides and skins. The tanneries require high doses of capital investment in
order to improve the existing technology so that Quality raw material could be produced and
supplied to leather manufacturing units.
Thirdly, in recent years the leather industry across the globe has been subjected to stringent
pollution control norms due to growing environmental concerns. Adhering to pollution
control norms helps them to access better market and lower tax regimes. But unfortunately,
the pollution control measures adopted for a large segment of Indian leather sector has been
found to be in adequate which ultimately erode their competitive advantage. In fact, in India
in recent years a number of tanneries have been closed on environmental considerations.
Since the Leather and leather products sector especially the tanneries are facing a lot of
problems in terms of Environmental norms, there is an urgent need for modernizing the
existing ones and also setting up new common effluent treatment plants at various leather
industry clusters as per international standards.
The Tannery Modernization Scheme of the Government of India provides investment grants
for enabling the small and medium enterprises to readjust quickly to the changed
circumstances of WTO regime. Tanneries in China and other major competing countries have
invested significant amounts of funds in large tanneries.
Suitable measures to attract large FDIs and JVs in leather sector from potential investors from
abroad would help in meeting the additional capital requirement of the sector.
Fourthly, from the financial point of view, since the industry has been dominated by small and
tiny producers, the availability of finance and cost of capital turns out to be a major constraint.
Fifthly, from a planning perspective, at the government level there is no clear cut road map
for the Indian leather industry to achieve its potentials. Moreover, not only there exist lacuna
at the planning and policy level but also the sector suffers from weak statistical reporting
system. The Council for Leather Exports (CLE) markets the products abroad and maintains
the export figures and other associated functions for exports. But the domestic sales,
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production and statistics of the unorganized sector producing leather and leather products are
not available adequately. This hinders in taking a holistic view of the sector. As a result, the
assessment of future potential based on forecasting tends to be far from reality.
Finally, on the global competitiveness front Indian leather sector is much behind that of its
competitors. In fact, all the aforesaid obstacles directly or indirectly but adversely affect the
productivity and competitiveness of Indian leather industries in comparisons to its competitors
such as China, Indonesia, Thailand, Vietnam and East European countries. As a result India
has a very low share in the aggregate global trade in leather in comparison to its major
competitor i.e. China. For example, India has a less than 3% share in the global trade in
leather compared to Chinas 20%. As regards to competition emanating from these countries,
immediate requirement is to make available quality raw material to Indian leather
Manufacturing Units. Apart, from that the present level of technology adopted by Tanneries
and manufacturing units need urgent upgradation.
In fact, not only the leather industry in general, but also the Indian footwear component
industry which is the pride of India in terms of its contribution to total leather exports is also
facing stiff competition from China in a number of shoe components - cellulose insole fabrics,
coated, impregnated fabrics and interlinings, where the price of the imported materials is
between 40% and 50% lower than the indigenously produced materials. Components worth
US $ 35 million were imported into the country last year, and Indian Footwear Component
Manufacturer Association (IFCOMA) expects a 100% increase in imports in the component
area from China in the current fiscal.
Along with the lack of competitiveness the size of the Indian footwear segment appears to be
too small in comparison to that of China. This is evident from the fact that India's share of the
global footwear imports is 1.5%, as against China's share of 14%.
Indian Shoe Federation, a body representing footwear export views that "China has a very big
footwear industry, and there is no way we can compete with China. In the low cost products,
orders cannot come to India, not just because of the price, but also because we do not have
factories that can undertake such huge orders."
This is precisely because of the fact that India's footwear manufacturing, even today is
concentrated in the unorganized and small scale sector. In fact, about 85% of footwear
production in India is still in tiny, cottage and small scale sector (Mani Almal, President
IFCOMA, http://www.ifcoma.org/about/message.asp). However, in the footwear business if
at all India has some competitive advantages in the global scenario; it is in the mid price
segments. But here also, we are facing competition from Vietnam.
The major reason for the low scale of operation in the leather industry in general and in the
footwear segment in particular could be lack of investments in the sector. Over the last 20
years china has attracted more than 10 times of investment that India has attracted. This is
precisely because of the fact that for a long time the sector almost in its entirety was in the SSI
list. Only recently, i.e. since 2001 it has been freed from the SSI clutch. And in the absence of

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appropriate regulatory environment it takes more than the required time for capacities to be
enhanced.
Thus, the above discussion suggests that the leather industry in India is constrained by several
obstacles in its progress towards achievement of potential growth in the future years. But,
certainly, the obstacles do not imply that the industry cannot achieve its potential growth
because along with its obstacles it has also a great deal of positive strengths as discussed
earlier. Hence, the success on the growth front will definitely depend on the relative strengths
of the positive and negative forces faced by the industry. In fact, a SWOT analysis gives a
better picture in this regard.
5.4 SWOT Analysis
An analysis of Strength, Weakness, Opportunity and Threats helps to assess the realistic
potential of an industry. Though a discussion on all these aspects of Indian leather industry
has already been done above, the following table summaries the above discussion in the form
of SWOT analysis.

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SWOT Analysis of the Indian leather industry

STRENGTHS

OPPORTUNITIES

Rising potential in the


domestic market
Growing
fashion
consciousness globally
Use of information
technology
and
decision
support
software
to
help
eliminate the length of
the production cycle for
different products
Use of e-commerce in
direct marketing

High Growth
Ready availability of highly skilled
and cheap manpower
Large raw material base
Policy initiatives taken by the
Government
Capability to assimilate new
technologies and handle large
projects
Continuous emphasis on product
development
and
design
upgradation

THREATS

WEAKNESSES

Lack of warehousing support from


the government
International price fluctuation
Huge labour force resulting in high
labour charges
Lack of technological inputs
Lack of strong presence in the
global fashion market
Unawareness
of
international
standards by many players

Major part of the


industry
is
unorganized
Limited scope for
mobilizing
funds
through
private
placements
and
public issues (many
businesses are familyowned)
Difficulty
in
obtaining bank loans
resulting in high cost
of private borrowing
Stricter international
standards
High
competition
from East European
countries and other
Asian countries
Shortage
of
communication
facilities and skills

Comparative picture of strength, weakness, opportunity and threat definitely suggests that the
realization of potential growth for Indian leather industry though seems difficult is not
impossible. The industry certainly can achieve its potential provided efforts are made at the
planning and policy level to ease its constraints. To put it in other words, Indian leather
industry can meet the challenges of globalization if appropriate steps are taken by the state in
a timely manner.
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CHAPTER VI
FIELD SURVEY FINDINGS
6.1 Profile of Leather Manufacturing Units
National Productivity Council has carried out a nationwide survey across various Leather
Manufacturing units to major constraints that are hindering the growth of leather
manufacturing units in India in terms of productivity and export competitiveness. The field
survey has been carried out across ten states in India with a view to provide sector specific
policy recommendations for enhancing productivity and export competitiveness of the leather
and leather products sector in the country.
The survey of the manufacturing units has been carried out with a structured questionnaire
(Annexure 1). The field survey tries to capture firm level information such as turnover,
employment, domestic and foreign trade, product description, cost related information, factors
affecting productivity, factors responsible for competitiveness and specific suggestions from
each of the units.
The field survey covers total 62 leather and leather products manufacturing units spread
across 10 states in India (Annexure 2).. Detailed state wise distribution of the responding
manufacturing units are given in table 6.1.
Table 6.1: Distribution of Leather & Leather Products Manufacturing Units NPC
Field Survey
Sl. No.
1
2
3
4
5
6
7
8
9
10

States

Leather Units (Nos.)

Percent

2
11
7
1
5
5
3
11
15
2
62

3.2
17.7
11.3
1.6
8.1
8.1
4.8
17.7
24.2
3.2
100

A.P.
Delhi/NCR
H.P.
Maharashtra
Karnataka
Rajasthan
Punjab
T.N.
U.P.
W.B.
Total

Source: NPC Field Survey, March-April 2008

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Majority of the manufacturing units are based at the Industry Centers (50%) while the
remaining 50% units are based at other places. The establishment year for the surveyed units
is reported in the range of 1949 to 2008. As far as the nature of business is concerned, 89%
respondents belong to manufacturing category while 8% reported that they belong to trading
company. A negligible proportion belongs to multinational and other categories. In terms of
the nature of the company, 65% belong to small units while 20% belong to registered
manufacturing categories. Among the sample units 58% belong to Small, 33% medium and
8% large category of manufacturing. About 45% units have obtained quality accreditations.
Nearly 63% responding manufacturing units opined that the quality accreditations boosted
their business.
6.2 Turnover and profitability of the Units
From table 6.2 it is observed that the average annual turnover of the manufacturing units
show wide fluctuations across the states. It may be due to the fact that from each state the
number of units surveyed is not significant enough. For example, the skewed nature of sample
distribution across the states leads to this huge variation in terms of average annual turnover
across states. However, at the all India level, the number of surveyed units is sufficient
enough to eliminate the problem of small sample.
It may be noted that the average annual turnover of the firms at all India level has shown an
increasing trend except for the year 2005-2006.

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Table 6.2: Average Annual Turnover of the 62 Leather Manufacturing Units State wise
(Rs. Lakhs)
States
A.P.

2003-04 2004-05

2005-06

2006-07

2007-08

--

12

20

26

80

Delhi/NCR

917

690

676

803

940

H.P.

6400

6500

2326

2107

2143

10

17

22

29

40

Karnataka

1022

1121

1222

1223

1423

Rajasthan

405

506

606

740

633

Punjab

177

177

177

227

587

T.N.

4296

4638

3664

3610

3933

U.P.

2697

3801

3402

4957

4975

W.B.

1251

1525

1453

1625

1788

All India

1881

1877

1676

1904

2111

Maharashtra

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6.3 Profitability of the Manufacturing Units


The Leather-manufacturing units have been asked about the trends in average profitability
(profit after tax) during the year 1991-2000. Among the responding units approximately 75
percent manufacturing units reported that average profitability increased during this period.
Majority of such units were small and medium sized units. About 15 percent units reported
that the profitability decreased. As regards to average profitability after 2000, firms which
experienced an increase in their profitability increased marginally to 76% again most of the
firms were small and medium sized units [table 6.3 (a & b)]. This indicated that the
profitability of the units reveal more or less same trends during the two periods.
Table 6.3.a: Average Profitability of the Units during 1991-2000 (Number of Responding
Manufacturing Units)
Response
Small
Medium
Large
Others
Total

Increased
14
10
1
25
14

Decreased
3
2
5
3

No change
1
2
-3
1

Total
18
12
3
33
18

Table 6.3.b: Average Profitability of the Units after 2000 (Number of Responding
Manufacturing Units)
Response
Small
Medium
Large
Others
Total

Increased
22
12
2
-36

Decreased
6
2
2
1
11

No change
28
14
4
1
47

Total
22
12
2
-36

The manufacturing units were further asked about the extent of increase in profitability after
2000. About 47.5 percent respondents reported that the increase was in the range of 0-5%
while 27.5 percent reported that the increase was in the range of 10-25% (table 6.4).
Table 6.4: Extent of increase in Profitability after 2000
Range (%)

Respondents (%)

0-5

47.50

5-10

22.50

10-25

27.50

25- above

2.50

Total
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The leather manufacturing units were also asked about the decrease in profitability. About 47
percent responding manufacturing units reported that the decrease was in the range of 0-5%
per annum after 2000 (table 6.5).
Table 6.5: Extent of decrease in Profitability after 2000
Range (%)

Respondents (%)

0-5

47.06

5-10

5.88

10-25

41.18

25& above

5.88

Total

100

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6.4 FDI and ICT Usage


Only a few (12/62) leather manufacturing units reported any type of Foreign Direct
Investment (FDI) in their enterprises. Most of them reported that the investment is less than
10 percent. All the manufacturing units responded that there is no foreign ownership of their
company and they didnt acquire any firm in foreign countries. This gives a clear indication
that government should make crucial efforts to promote foreign ownership and FDI in leather
and leather product industry.
The manufacturing units were asked about the usage of Information Communication
Technology (ICT) in the firms operation. It was reported that they use ICT at varying degrees
in their operations (table 6.6).
Table 6.6: Extent of ICT usage in the Unit
Range (%)

Respondents (%)

0 -5

7.14

5-10

11.90

50-Above

4.76

NA

76.19

Total

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As far as research is concerned, only 15 percent units reported that they are engaged in
research and development activities. However, only 8 percent units received any product
patent during the last five years. In the case of product innovation, many manufacturing units
74 percent units reported affirmatively.
6.5 Employment Profile
It is seen from table 6.7 that the average employment across the manufacturing units has
steadily increased from 257 employees during 2003-04 to 315 employees during 2007-08.
Except during 2005-06 we notice consistent increase in employment across the leather
manufacturing units. The decline in employment reported during 2005-06 indicates that the
sector is facing problems due to increasing competition.
Table 6.7: Average Employment per Unit

2003-04

Employees per Unit


(Average Number)
257

2004-05

276

2005-06

260

2006-07

286

2007-08

315

Years

Average Employment per Unit

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37 Manufacturing units out of a total 62 reported that the employment has grown during the
last five years. More than 32 percent manufacturing units reported that the range of increase
of employment during the last five years is reported in the range of 10-25 percent. About 27
percent manufacturing units reported the increase in the employment in the range of 5-10
percent (table 6.8).
Table 6.8: Range of increase in employment
Increase Range (%)

Manufacturing Units Response (%)

0-5

24.32

5-10

27.02

10-25

32.43

25 & Above

16.21

Total

100

29% responding manufacturing units reported that the casualization of labour increased
during the last five years. The respondents were further asked about the extent of increase in
wages/salary after 2000. About 26 percent respondents reported that the salary has increased.
6.6 Trade Related Information
It is seen from table 6.9 that 75% responding manufacturing units are engaged in exports. The
remaining 25% units did not engage in any export activity. Also, when only large sized firms
are considered most of them export.
Table 6.9: Units engaged in exports (Number of Manufacturing firms)
Respondents

Yes

No

Total

Small

17 (65.38)

9 (34.62)

26 (100)

Medium

14 (87.50)

2 (12.50)

16 (100)

Large

4 (100)

--

4 (100)

Others

--

1 (100)

1 (100)

Total

35 (74.47)

12 (25.53)

47 (100)

Note: Figure in bracket are percentage

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As it is evident from secondary data that leather industry is dominated by unorganized and
small sized sector. This survey data also gives the same result. 64% firms export more than
50% of their total sales and most of these firms are small sized (Table 6.10).

Table 6.10: Percentage of exports to total sales


Respondents

1-10%

10-25%

25-50%

50-75%

Above75%

Total

Small
Medium
Large
Others
Total

3 (12.50)

3(12.50)

1 (4.16)

2 (66.66)
-5 (13.51)

1 (33.33)
-4 (10.81)

3(12.50)
1 (11.11)
--4 (10.81)

14 (58.33)
8 (88.88)
-1 (100)
23 (62.16)

24 (100)
9 (100)
3 (100)
1 (100)
37 (100)

--1(2.70)

Note: Figure in bracket are percentage

As regards to export growth during the last five years, 82.9% units reported an increase while
only 8.9 percent reported a decline (Table 6.11).
Table 6.11: Growth in export during the last five years
Growth in Export

Manufacturing Units Response (%)

Increased

82.9

Decreased

8.6

No Change

8.6

Total

100.0

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About 30% units reported that the increase in exports is in the range of 1-10% while 26.7%
units reported above 50% export growth during the last five years (Table 6.13).
Table 6.12: Range of increase in exports during last five years
Range (%)

Manufacturing Units Responses (%)

1-10

30.0

10-25

26.7

25-50

16.7

50 & Above

26.7

Total

100.0

As far as import by leather manufacturing units are concerned, more than 50 percent leather
manufacturing units import raw materials to meet production requirements (Table 6.13). Not
surprisingly, it was only small and medium sized firms which were indulged in import of raw
material. No large sized firm imported raw material for production.
Table 6.13: Import by leather manufacturing units
Respondents

Yes

No

Total

Small

12 (52.17)

11 (47.82)

23 (100)

Medium

7 (77.78)

2 (22.22)

9 (100)

Large

--

2 (100)

2 (100)

Others

--

1 (100)

1 (100)

Total

19 (54.29)

16 (45.72)

35 (100)

Note: Figure in bracket are percentage

Nearly 36% of units Import more than 75% raw materials for the units production
requirements (Table 6.14).

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Table 6.14: Level of import of raw materials for units Production requirement
Respondents

1-10%

10-25%

25-50%

50-75%

Above75%

Total

Small
Medium
Large
Total

3 (33.33)
4 (33.33)
1 (25.00)
8 (32.00)

-4 (33.33)
-4 (16.00)

-2 (16.66)
-2 (8.00)

--2 (50.00)
2 (8.00)

6 (66.66)
2 (16.66)
1 (25.00)
9 (36.00)

9 (100)
12 (100)
4 (100)
25 (100)

Note: Figure in bracket are percentage

However level of import of finished products have been reported to be very less than at 10%
by about 77% of manufacturing units (Table 6.15). Some of the factors that hinder the
quantity of imports are import licenses and export taxes.
Table 6.15: Level of import of finished product
Range (%)

Manufacturing Units Responses (%)

1-10

76.9

10-25

15.4

25-50

7.7

Total

100.0

From a critical analysis of export and imports it can be concluded that a larger proportion of
external trade in leather and leather product industry consists of exports.
It is due to domination of unorganized sector in this industry that it is largely small and
medium sized units which are indulged in trade.
60% small and medium sized firms have captured a domestic market share of 1-5% only.
Also, a larger proportion of industry consists of small and medium sized units. This implies
that larger the number of firms in an industry smaller will be the market share of each firm.
(table 6.16).
Table 6.16: Domestic market share of the manufacturing unit
Respondents
Small
Medium
Large
Others
Total

1-5%
14 (66.67)
6 (50.00)
2 (50.00)
1 (100.00)
23 (60.53)

5-10%
2 (9.52)
2 (16.67)
--4 (10.53)

10-25%
2 (9.52)
2 (16.67)
1 (25.00)
-5 (13.16)

25%&Above
3 (14.29)
2 (16.67)
1 (25.00)
-6 (15.78)

Total
21 (100)
12 (100)
4 (100)
1 (100)
38 (100)

Note: Figure in bracket are percentage


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More than 50% of the firms, as survey data shows, have domestic sales of more than 50% to
their total sales and major contributors are again small and medium sized units. (Table 6.17).
Table 6.17: Share of domestic sales to total sales
Respondents

1-10%

10-25%

25-50%

50-75%

75%Above

Total

Small

6 (25.00)

3 (12.50)

1(4.17)

3 (12.50)

11 (45.83)

24 (100)

Medium

5 (35.42)

1(7.15)

2 (14.29)

2 (14.28)

4 (28.57)

14 (100)

Large

2 (50.00)

--

--

1 (25.00)

1 (25.00)

4 (100)

Others

--

--

--

--

1 (100.00)

1 (100)

Total

13 (30.23)

4 (9.98)

3 (6.98)

6 (13.96)

17 (39.54)

43 (100)

Note: Figure in bracket are percentage

6.7 Cost Competitiveness


87% of the surveyed firms have experience an increase in their cost competitiveness.
Simultaneously, 70% of such firms have experienced an increase in their labor productivity as
well. This implies that increase in cost competitiveness is significantly due to increase in labor
productivity. It can also be concluded that small and medium size units are labor intensive.
(Table 6.18).
Table 6.18: Cost competitiveness of the firm during the last five years due to labor
productivity
Labor Productivity

Cost
Competitiveness

Respondents

increased

decreased

Increased
Decreased
No change
Total

29 (69.05)
2 (50.00)
1 (50.00)
32 (66.67)

4 (9.53)
1 (25.00)
-5 (10.42)

No
change
9 (21.42)
1 (25.00)
1 (50.00)
11(22.92)

Total
42 (100)
4 (100)
2 (100)
48 (100)

Note: Figure in bracket are percentage

88% of surveyed firms say that their cost competitiveness has increased and 75% of such
firms have also experienced an increase in total productivity.
Thus, its not only the labor productivity that has increased rather overall productivity of
leather productivity has increased. (Table 6.19)

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Table 6.19: Cost Competitiveness of firms due to Total Factor Productivity


Total Factor Productivity
Respondents Increased Decreased
Increased
Cost
Competitiveness Decreased
No change
Total

30
2
1
33

No
change
6

2
8

Total
40
2
3
45

Manufacturing units were further asked about the contribution of various components of cost
in total cost of production. It has been reported by 45% units that the wages and salaries
constitute 10-25% total cost. The responses received from the units with respect to various
cost components have been summarized in table 6.20. Majority respondents reported an
increase in various cost components in the range of 1-10% for most components of cost
except wages and salaries, raw materials and taxes.
Table 6.20: Ratio of various Cost Components in Total Cost of ProductionRespondent
(%)
Cost
Range (%)

Wages &
Salaries

Other Labour
Related Cost

Raw
Materials

Fuel
Cost

1-10
10-25
25-50
50&
Above
Total

39.2
45.1
11.8
3.9

61.2
28.6
8.2
2.0

5.8
21.2
34.6
36.5

100.0

100.0

100.0

Interest

Security

Taxes

Others

59.2
24.5
12.2
4.1

67.3
28.6
4.1

85.0
10.0
5.0

41.2
45.1
13.7

57.1
38.1
4.8

--

--

--

--

100.0

100.0

100.0

100.0

100.0

6.8 Price Factors


Leather Manufacturing units have been interviewed about the price competitiveness of their
units during the last five years. More than 86% units reported that the price competitiveness
increased during the last five years. Only 8% units reported that the price competitiveness
decreased while 6% reported that there is no change.
The increase of price competitiveness have been reported in the range of 1-10% by 58% units
while 37% reported that the price increase was in the range of 10-25% range. The remaining 5
percent units reported an increase in the range of 25-50%.
Only 30% manufacturing units reported that there was an increase in the price of the products
due to the increase in the import of raw materials during the last five years.

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All large sized firms surveyed have experienced an increase in price competitiveness along
with 86% of small and medium sized firms. Which implies that price competitiveness of
entire industry has increased?
6.9 Factors affecting Productivity
Most of the leather-manufacturing units interviewed (65%) reported an increase in labour
productivity during the last five years (table 6.21). Only 12% units reported a decrease in
labour productivity while another 24% reported no change.
Table 6.21: Labour productivity during last five years
Labour
Productivity
Increased

Respondents (%)
64.7

Decreased

11.8

No Change
Total

23.5
100.0

As far as increase in labour productivity is concerned, about 49% units reported that the
labour productivity of the units increased in the range of 1-5%.
In the case of total factor productivity (output produced relative to all inputs used), nearly
71% manufacturing units reported an increase while 13% units reported decrease and another
16% units reported no change in total factor productivity during the last five years.

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6.10 Factors responsible for Competitiveness of the Units


Manufacturing units were interviewed about the competitiveness of the unit during the last
five years, overwhelming 79% units reported that the competitiveness of the units increased
while the remaining 21% units were of the view that the competitiveness either decreased or
remained stagnant. As regards to the availability of raw materials, more than 67% units
reported that it is available within the country; another 17% reported that the raw material is
imported. Only 13.5% units reported that the raw materials are available within the region.
In the case of the availability of quality human resources during the last five years, the units
have given mixed responses as 53% units reported that there is an increase while 40% units
were of the opinion that it decreased during the last five years another 7% units reported no
change.
As regards to the quality of the present educational system for catering to the requirements of
the leather industry, 57% units are satisfied whereas 43% units are not. Nearly 70% units
reported that the labour relations in the states are productive. Only 30% units are not satisfied
with labour relations in the states.
About 61% manufacturing units are not satisfied with the quality of infrastructure (both social
and physical) in the state.
As far as Government interface with business/private sector is concerned, about 69%
respondents are not satisfied while 31% units reported that they are satisfied. The units are
further interviewed whether state government is friendly towards investors while 72%
reported positively the remaining 28% reported negatively. Similarly, the extent of
computerization of government records 73% units reported that they are satisfied while 27%
were not satisfied. In the case of corruption level in the government, overwhelming 64% units
reported that it increased during the last five years. Only 10% units reported that it decreased
while 26% reported of no change in corruption levels. As regards to transparency in
government 55% units are satisfied while 45% units are not satisfied with it.
6.11 Research and development expenditure and Product innovation
In last 5 years only 21% of the firms have incurred R&D expenditure. The field survey gives
us a picture that most of the small sized firm doesnt spend on research and development but
almost all large sized firms are indulged in research and development activities (table 6.22).
Table 6.22: Research and Development Expenditure by Manufacturing firms
Respondents
Small
Medium
Large
Others
Total

Yes
2 (6.89)
5 (35.72)
3 (100.00)
-10 (21.28)

National Productivity Council, New Delhi

No
27 (93.10)
9 (64.28)
-1 (100)
37 (78.73)

Total
29 (100)
14 (100)
3 (100)
1 (100)
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Note: Figure in bracket are percentage

This field survey draws a picture that only 21 %( approx) firms spend on R&D but all of them
havent introduced any new product in last five years. Only 60% of such firms have done it.
As previous analysis shows that a small proportion of small sized firms are involved in R&D
we can conclude that most of the time these are the large sized firms which provide new
products to the market and variety to consumers (table 6.23).
Table 6.23: R&D and Product Innovation
Respondents
Yes
No
Total

Yes
6 (60.00)
4 (11.74)
10 (22.73)

No
4 (40.00)
30 (88.23)
34 (77.27)

Total
10 (100)
34 (100)
44 (100)

Note: Figure in bracket are percentage

6.12 Factors affecting competitiveness of the Units


Based on the field investigations and discussion with various stake holders, the following
factors have been identified which affect the Competitiveness of Leather and Leather products
manufacturing in India.

Fluctuations in foreign exchange or rupee appreciation against dollar.


Global competition intensified
Increase in raw material price.
Various Government trades and export policies are not favorable for the growth the
sector.
Quality of product needs improvement.
Increasing labour cost.
Fuel cost increase.
Competitions from china.

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Dominance of small manufacturers.


Interest rates are very high.
Shortage of skilled manpower.
Shortage of power supply.
High Power & Water charges & Improper and irregular supply.
Procedural delays in export clearance.
High Import and excise duty cost.
Labour problems in organized sector.
Lack of market intelligence and market planning.
Stringent Pollution Norms.
Need to open outlets and showroom all over the country.

6.13 Measures taken by Manufacturing Units for boosting domestic & export
competitiveness during last five years
The leather manufacturing units have adopted a number of measures during the last five years
to boost domestic and export competitiveness.

Better Quality web site for promoting marketing of products.


Quality control measures adopted to get the product accredited through quality and
concern systems like ISO9001 and ISO14001.
Increased marketing & advertisement
Opening more distribution outlet in rural area to capture the domestic market
Financial incentives
Leather industry is growing but still latest technology, trained workers and quality is
lacking
Competition is increasing and in future it is going to intensify
Facilities like tax exemption on small scale sector may be given
Measures to tackle frequent labour unrest/strikes except for grievances/demands.
Quality manpower, knowledge management and latest technology
Quality labour from ITI recruited.
Raw material cost is very high,
Requirement of Good infrastructure for stable production
Protection from Chinese dumping required
Establishing more distribution outlet in rural area to capture the domestic market
Measures taken to tackle frequent labour unrest/strikes except for grievances/demands.
Quality manpower, knowledge management and latest technology introduced in the
production process
Better designs and tools made available
Productivity measures have been improved to become competitive

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CHAPTER VII
RECOMMENDATIONS
Since the study was undertaken with limited budget the limited resources available in terms of
finance, the unit level data coverage was undertaken with a limited scope and coverage.
However, efforts have been made to minimize such constraints through analyzing various data
sources available to arrive at broad recommendations for the development of the sector. The
recommendation have been formulated which are implementable in nature.
Quality of Product

There is an urgent need to improve product quality and efforts should be made to
promote quality systems among the leather and leather products manufacturers to ensure
sustained product quality. Towards this emphasis should be placed on strengthening
improved design, development and prototyping. Quality Council of India and BIS can
provide sufficient support for identifying and establishing quality standards for the
leather industry.

Branding Requirements

Currently large numbers of SME units are producing quality leather products but are
unable to realize the advantage due to lack of branding. Goal through its developmental
agencies should promote branding of quality products produced by large number of small
manufactures. An incentive scheme in terms of product branding may be introduced for
an initial period of five years. Central Leather Research Institute along with Ministry of
Commerce & Industry, Industry Associations and NMCC can evolve schemes to address
this critical issue.

Niche Marketing

Since the traditional exports markets for Indian leather products such as USA, EU etc. are
facing stiff competition from other developing countries, the exporters need to focus on
niche market. Industries should focus on womans fashion footwear, where India has
design advantage and cost competitive as compared to other exporting countries mainly
East European countries. National Institute of Fashion Technology, National Institute of
Design along with NMCC can evolve appropriate action plans to address this issue.

Tannery Modernization

On the technology front, most of the existing tanneries use outdated technology which
inhibits them from producing good quality leather in spite of access to quality raw
materials such as hides and skins. The tanneries require high doses of capital investment
in order to improve the existing technology so that Quality leather could be produced and
supplied to leather manufacturing units. The Tannery Modernization Scheme of the
Government of India provides investment grants for enabling the small and medium

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enterprises to readjust quickly to the changed circumstances of WTO regime. Tanneries in


China and other major competing countries have invested significant amounts of funds in
large tanneries. Therefore, it is recommended that Ministry of textiles and Ministry of
Commerce & Industry need to invigorate the existing modernization scheme and make it
more acceptable.
Environmental Norms/Regulations

Various leather producing units should be encouraged and be given incentives to adopt
adequate pollution control measures. Since the Leather and leather products sector
especially the tanneries are facing a lot of problems in terms of Environmental norms,
there is an urgent need for modernizing the existing ones and also setting up new
common effluent treatment plants at various leather industry clusters as per international
standards. Ministry of Environment & Forests can act as a facilitator along with State
Pollution Control Boards and Industry associations can provide the guidelines and
assistance for setting up common effluent Treatment plants at major Leather clusters.

Cluster Development

Another area where immediate intervention is required is developing integrated leather


based product manufacturing clusters with Special Economic Zone facilities to be
established, at major producing centers such as Ambur in Vellore district in Tamil Nadu,
Agra and Kanpur in UP and Kolkatta in West Bengal. Govt. may set up manufacturing
clusters for leather and leather products on the times of SEZs. Cluster approach will
ensure lower cost of raw material as well as proper and pinpointed implementation of
detailed policy package and ensure a clear road map for the fast track growth and
development of the sector. It should also incorporate aggressive marketing plan and a
coordinated time bound action plan to realize full potential of the sector. Ministry of
MSME along with NMCC can identify the areas where Clusters development Programme
need to be undertaken.

Rationalization of Duty Structure

It is essential to rationalize both the internal and external duty structure of inputs needed
for the sector. In addition to the rationalization of the duty structure schemes are needed
to encourage the existing producers of leather products for technological up gradation.
Modernization requires a heavy dose of investment for which availability of capital is a
major constraint. Since, most of the players in the leather sector are small and tiny
industries, the government should take proactive steps for easing the capital constraint.
Ministry of Commerce & Industry and Ministry of MSME along with NMCC can evolve
strategies to rationalize the duty structure of inputs.

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FDI in Leather Industry

The other option could be to encourage FDI in the leather sector. In order to increase FDI
in the Indian leather sector it is essential to encourage good governance and global bench
mark of best practices and provide good infrastructure for the sector. Suitable measures
to attract large FDIs and JVs in leather sector from potential investors from abroad would
help in meeting the additional capital requirement of the sector. Ministry of Commerce &
Industry along with NMCC can organize B2B meets to facilitate and encourage Foreign
investment in the sector.

Skilled Manpower Requirement

Vocational training through ITI s, Textile Design & Management Institutions specially in
the area of Apparel Manufacturing, Quality Control and Designing needs to be
encouraged so that skilled work force is available. Leather development Institutes needs
to develop and organize training of trainers for development of workers and artisans of
Leather sector. In order to increase the availability of a large number of skilled workers
and artisans, efforts should be made to enhance the training and capacity building
infrastructure in the country. Ministry of HRD along with AICTE and Industry
Associations in tandem can develop special modules for ITIs and other educational
institutions for addressing the current needs of the sector.

Duty Drawback for Exports

leather and leather products sector being labor intensive provides employment to millions
of skilled and semiskilled labor force. The sector is adversely affected by the current
global meltdown and it is essential to provide a policy package in terms of reduction of
taxes, credits at lower rates as well as duty drawback for exporters. Ministry of
Commerce & Industry along with NMCC and Industry Associations can work out
appropriate stimulus packages for supporting the sector.

Need for Database

Various suggested measures like review of policies which involves time to time
assessment of strength and weaknesses of the sector, preparation of appropriate detailed
policy package and detailed road map etc., are almost impossible to adopt in the
absence of coherent statistical data base. Hence, it is essential that a comprehensive
statistical data base may be developed for Indian leather sector. Leather exhibition and
leather machinery fares/exhibitions needs to be organized more and more. Central
Statistical Organization under Ministry of Statistical Programme Implementation along
with NMCC and Industry Associations can work out the details regarding collection,
classification, and compilation of required data.

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Economic Stimulus Package

The central excise duty has been reduced by GoI as part of the economic stimulus
packages Announced on December 7, 2008. The central excise duty on footwear of MRP
between Rs.250/pair to MRP Rs. 750/pair has been reduced from 8% to 4% and for
footwear of MRP exceeding Rs. 750/pair has been reduced from 14% to 10% as part of
the economic stimulus package. In the stimulus package announced on February 24,
2009, there has been reduction in the general rate of central excise duty from 10 per cent
to 8 per cent. The excise duty on footwear of MRP exceeding Rs. 750/pair has now been
further reduced from 10% to 8% in the third stimulus package after being reduced from
14% to 10% in the first fiscal stimulus package. Ministry of Commerce & Industry along
with NMCC and Industry Associations can plan for further reductions in duty structure.

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REFERENCES
Business Line-Hindu Business Line February 04, 2005, (Global leather cos keen to set up shop
in India)
Business Line- The Hindu Business line, March 22, 2005, (An interview with Rafinesque
Ahmed, Chairman)
CII, New Delhi. (2006), (The Indian Footwear & Leather Industry: Key Challenges &
Opportunities)
CMIE, Foreign Trade and Balance of Payments (various issues)
CRISIL- NMCC-March 2009, Enhancing Competitiveness of Indian Manufacturing Industry:
Assistance in Policy Making, Final Report submitted to National Manufacturing
Competitiveness Council.
Ghosh Jayati (2002) A Case Study of India, (Globalization, Export-Oriented Employment for
Women and Social Policy), Social Scientist, Vol. 30, No. 11/12 (Nov. - Dec., 2002), pp. 17-60
Central Statistical Organization, Annual Survey of Industries (various issues)
Economic Survey: 2006-07, 2007-08 2008-09, Ministry of Finance
http://www.tdctrade.com/imn/06050201/footwear048.htm
International Market News (India's unique dance to footwear dominance)
Kelkar V.L. & Rajiv kumar (1990) Industrial Growth in the Eighties, Emerging Policy Issues,
Economic and Political Weekly, 27 January
Kurien, CT (1993) Indian Economic Reforms in the Context of Emerging Global Economy,
Economic and Political Weekly, April 10, pp 655-65.
Leathers Monthly Magazine of the Council for leather Exports, Various issues.
Mathur Shobha (2005) Moving up the value chain, Industrial Economist, February 15
Sinha, Saurabh and Sanjay Sinha (1992) Leather Exports: An Illusory Boom, Economic and
Political Weekly, August 31, pp M-111-116
Tewari Meenu (2005) Global Standards and the Dynamics of Environmental Compliance in
India's Leather Industry, Oxford Development Studies, Volume 33, Issue 2 June 2005 , pages
245 267.
UNCTAD (2007) Trade Globalization and Development Oct 2006- May2007, New Delhi,
India.

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Productivity & Competitiveness of Indian Manufacturing Leather & Leather Products Sector

WEB SITES
(a) www.newindia.com/klid/
(b) www.leatherindia.org
(c) www. iilfleatherfair.com/register_now.html
(d) www.icmr.icfai.org/casestudies
(e) www.leatherindia.org
(f) www.ciionline.org/news_new
(g) www.nmcc.nic.in/pdf/Interview_v_Krishnamurthy.pdf
(h) www. planningcommission.nic.in/plans/annualplan/1999-00
(i) www.indiabiznews.com/biznews/
(j) www.chinashoesexpo.com/
(k) www.newindia.com/klid/
(l) www.leatherindia.org
(m) www.iilfleatherfair.com/register_now.html
(n) www.ciionline.org/news_new
(o) www.nmcc.nic.in/pdf/Interview_v_Krishnamurthy.pdf
(p) www.indiabiznews.com/biznews/
(q) www.chinashoesexpo.com/
(r) www.indianleatherportal.com
(s) www.tdctrade.com/imn/06050201/footwear048.htm
International Market News (India's unique dance to footwear dominance)

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Annexure 1
Survey Questionnaire: Company/Manufacturing Unit
National Productivity Council is carrying out a Nation wide survey across four
Manufacturing Sectors (Food Processing, Textile & Clothing, Leather & Leather Products
and Electronics & IT hardware) on behalf of National Manufacturing Competitiveness
Council (NMCC), DIPP, Ministry of Commerce and Industry, GoI. The objective of this
stakeholder survey is to identify and understand major constraints that are hindering the
growth of manufacturing sector in the path of productivity growth and export competitiveness
and to suggest Sector Specific recommendations to NMCC with a view to enhance
sectoral/manufacturing productivity and export competitiveness.
(Please fill as per instructions given with each question.
Write codes/ values in the box provided at the right hand side)
1.0
2.0

3.0

4.0

Sector (1= Food Processing, 2 = Textile & Clothing, 3 = Leather


& Leather Products, 4 = Electronics & IT Hardware)
State (1 = AP, 2 = Delhi & NCR, 3= Gujarat, 4 = Himachal
Pradesh, 5=Maharashtra, 6=Karnataka, 7 = Kerala, 8 = North
East, 9 = Rajasthan, 10 = Punjab, 11 = Tamil Nadu, 12 = UP,
13= West Bengal)
Location (1= Industry Centre, 2 = Cluster, 3 = EPZ, 4 = SEZ,
5=Others
Factory/Unit/Organisation specific information
Company Name & Address: ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Website if any:----------------------------------------------------------------

4.1
4.2

4.3

4.4
4.5

Contact Persons Name----------------------------------------------------------------Telephone if any: ---------------e-mail address if any: ---------------------------------------------------Year of Establishment


What is the Primary Business of your company ?
(1=Manufacturing, 2=Trading Company, 3= Multinational company,
4=Others, _______________________________________________
What is the nature of your company?
(1= Small Scale Sector, 2=Informal Sector, 3= Registered
Manufacturing, 4= Others)
What is the category of your company? The primary Business
(1= Small, 2=Medium, 3=Large, 4=Other,)
Does Your organization has Quality Accreditation like ISO 9000,
HACCP etc? (1= yes, 2=No)

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4.5.2

If yes, please specify whether the accreditation has helped in


boosting business growth? (1= yes, 2=No)
4.6
Annual turnover of your organization/Company/Enterprise (Rs lakhs)
2003-04
2004-05
2005-06
2006-07
2007-08
4.7
Average profitability (Profit After Tax) of your enterprise during
1991 to 2000 (considering 1991 as base year) (1= Increased, 2=
Decreased, 3=No Change)
4.8
Average profitability (Profit After Tax) of your enterprise after
2000 (keeping 2000 as base year) (1 = Increased, 2= Decreased, 3=No
Change)
4.8.1 What was the extent of increase in profitability after 2000 (keeping
2000 as base year) (1=0-5%, 2=5-10%, 3=10-25%, 4=25% & above)
4.8.2 What was the extent of decrease in profitability after 2000
(keeping 2000 as base year) (1=0-5%, 2=5-10%, 3=10-25%, 4=25%
& above)
4.9
Share of Foreign Direct Investment in your Enterprise
(1=0-5%, 2=5-10%, 3=10-25%, 4=25-50%, 5= Above 50%, 6=Not
Applicable)
4.10
What is the extent of foreign ownership of your company?
1=No foreign ownership, 2=Foreign partner(s) have less than or equal
to 50% ownership, 3=Foreign partner(s) have more than 50%
ownership, 4=Other)
4.11
Did your organization acquire any firm in other countries?
(1=No acquisition, 2= Full ownership, 3=less than or equal to 50%
ownership, 4=more than 50% ownership,)
4.12
Extent of Usage of ICT in firms operation/production.
(1=0-5%, 2=5-10%, 3=10-25%, 4=25-50%, 5= Above 50%, 6=Not
Applicable)
4.13
Did your Organisation conduct/commission any Research &
Development (R &D) during the last five years? (1= yes, 2=No,)
4.14
Did your Organisation get any product patented during the last
five years? (1= yes, 2=No,)
4.14.1 If yes, please mention the number & name of the product

4.15

Did your Organisation introduced any product innovations


during the last five years? (1= yes, 2=No,)
4.15.1 If yes, please mention the number & name the innovation

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5.0

Employment Related Information

5.0

Total Number of Employees in your organization (Nos)


2003-04
2004-05
2005-06
2006-07
2007-08
Employment growth in the organization during the last five years.
(1= Increased, 2= Decreased, 3=No Change,)
If Increased, please specify the range of increase in employment
during the last five years?
(1=0-5%, 2=5-10%, 3=10-25%, 4=25% & above)
If decreased, please specify the range of decrease in employment
in your organisation in the last five years? (0=1-5%, 2=5-10%,
3=10-25%, 4=25% & above) (specify)
The casualisation of labour during the last five years has
(1=Increased, 2=decreased, 3=No change, 4=Dont know)
Growth in wages/salary in the organization after 2000 (with 2000
as base) (1= Increased, 2= Decreased, 3=No Change,)
If Increased, please specify the range of increase in wages/salary
in your organisation in the last five years?
(1=0-5%, 2=5-10%, 3=10-25%, 4=25% & above)
If decreased, please specify the range of decrease in wages/salary
in your organisation in the last five years? (1=1-5%, 2=5-10%,
3=10-25%, 4=25% & above)
Trade Related Information
Is your organization engaged in Exports
(1=Yes, 2= No)
If yes, what is the percentage of Export to Total Sales
(1=1-10%, 2=10-25%, 3=25-50%, 4=50-75% 5=Above 75%)
Growth in export during the last five years. (1= Increased, 2=
Decreased, 3=No Change,)
If Increased, please specify the range of increase in export during
the last five years?
(1=0-10%, 2=10-25%, 3=25-50%, 4=50% & above)
If decreased, please specify the range of decrease in export in
during in the last five years?
(1=0-10%, 2=10-25%, 3=25-50%, 4=50% & above)
Is your organization engaged in Imports
(1=Yes, 2= No)
If yes, what is the percentage of Import to Total Sales
(1=1-10%, 2=10-25%, 3=25-50%, 4=50-75% 5=Above 75%)

5.1
5.1.1

5.1.2

5.2
5.3
5.4

5.5

6.0

6.1
6.2
6.2.1

6.2.2

6.3
6.3.1

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6.4

6.5

6.5.1

6.6
6.6.1

If yes, the level of import of raw material for your companys


production requirement.
(1=0-10%, 2=10-25%, 3=25-50%, 4=50-75% 5= 75 & above)
The level of import of finished products by your company?
(1=0-10%, 2=10-25%, 3=25-50%, 4=50-75% 5= 75 & above)
Please specify the major country from where you are
importing finished products.
___________________________________________
Please mention your export destinations
Product Description
Countries you were trading in the
past

6.6.2

Product Description

Countries you are Currently Please mention the


trading with (Country Name) name of
competing
Countries
Also specify the
Competitive
Advantage of that
Country: (1=Cost
of Product, 2=
Latest Technology,
3=Quality of
product, 4=Other)

6.6.3

Product Description

Countries you are planning to trade in near future

6.7

The factor (s) hindering the quantity of imports


(1= Import pricing Scheme,2= Import licenses, 3=Import quotas,
4=Import prohibition, 5=Quantitative safeguard measures, 6=Export
restraint arrangement,7=Non trade Barriers, 8=Any other)

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Productivity & Competitiveness of Indian Manufacturing Leather & Leather Products Sector

6.8

7.0

7.1
7.2
7.2.1

7.2.2

7.7

8.0

8.1

8.2

8.3
8.3.1
8.3.2
8.3.3
8.3.4
8.3.5
8.3.6
8.3.7
8.3.8

The factor (s) affecting the export of your products


(1=Export taxes, 2= Export quantitative restriction, 3=Certification,
4=Inspection fee, 5=State trading administration, 6=Dual pricing
schemes, 6=Non trade barriers,7=Any other)
Domestic Market Related Information
What is the market share of your product? Please specify the
range (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above)
What is the percentage of Domestic Sales to Total Sales
(1=1-10%, 2=10-25%, 3=25-50%, 4=50-75% 5=Above 75%)
Growth in the domestic demand of your products after 2000
during last five years. (1= Increased, 2= Decreased, 3=No Change)
If Increased, please specify the range of increase in the domestic
demand of your products in the last five years? (1=1-5%, 2=510%, 3=10-25%, 4=25% & above)
If decreased, please specify the range of decrease in the domestic
demand of your products in the last five years? (1=1-5%, 2=510%, 3=10-25%, 4=25% & above)
Extent of competition in the domestic market from local
companies? Please specify the range [1=Intense (>20 players),
2=Medium (10to 20 Players), 3=Low (0-10 Players), 4=No
Competition]
Cost Related Information
The Cost competitiveness of your company during the last five
years. (1= Increased, 2= Decreased, 3=No Change, 4=Other)
If Increased, please specify the range of increase in cost
competitiveness of your products in the last five years? (1=110%, 2=10-25%, 3=25-50%, 4=50% & above)
If decreased, please specify the range of decrease in cost
competitiveness of your products in the last five years? (1=110%, 2=10-25%, 3=25-50%, 4=50% & above)
Please indicate the Current percentage (%) contribution of the following
components to total cost of production
Wages & Salaries (1=1-10%, 2=10-25%, 3=25-50%, 4=50% &
above)
Other labor related cost (1=1-10%, 2=10-25%, 3=25-50%, 4=Above
50%)
Raw Materials (1=1-10%, 2=10-25%, 3=25-50%, 4=50% & above)
Fuel and Energy (1=1-10%, 2=10-25%, 3=25-50%, 4=50% &
above)
Interest Charges (1=1-10%, 2=10-25%, 3=25-50%, 4=50% &
above)
Security (1=0-10%, 2=10-25%, 3=25-50%, 4=50% & above)
Taxes (1=0-10%, 2=10-25%, 3=25-50%, 4=50% & above)
Others(1=0-10%, 2=10-25%, 3=25-50%, 4=50% & above)

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8.4
8.4.1
8.4.2
8.4.3
8.4.4
8.4.5
8.4.6
8.4.7
8.5.1

8.6.1

8.7.1

8.8.1

9.1.1

9.1.2

9.2.1

Please indicate the Change in contribution of the following components


to total cost of production
The share of wages and salaries in the cost of production over the
last five years (1= Increased, 2= Decreased, 3=No Change)
The share of Other labor related cost in the cost of production over
the last five years,( 1= Increased, 2= Decreased, 3=No Change)
The share of Raw Materials in the cost of production over the last
five years, (1= Increased, 2= Decreased, 3=No Change
The share of Interest Charges in the cost of production over the last
five years, (1= Increased, 2= Decreased, 3=No Change)
The share of Security in the cost of production over the last five
years, (1= Increased, 2= Decreased, 3=No Change)
The share of taxes in the cost of production over the last five years,
(1= Increased, 2= Decreased, 3=No Change
The share of other elements in the cost of production over the last
five years, 1= Increased, 2= Decreased, 3=No Change)
Is there any increase in cost of production of your product in
recent years due to increase in exports of raw materials. (1= Yes,
2=No) If yes, please specify the range (1=1-5%, 2=5-10%, 3=1025%, 4=25% & above)
Is there any increase in cost of production of your product in
recent years due to decrease in imports of raw materials. . (1=
Yes, 2=No). (1= Yes, 2=No)If yes, please specify the range (1=15%, 2=5-10%, 3=10-25%, 4=25% & above)
Is there any decrease in cost of production of your product in
recent years due to increase in exports of raw materials? If yes,
please specify the range (1=1-5%, 2=5-10%, 3=10-25%, 4=25% &
above)
Is there any decrease in cost of production of your product in
recent years due to increase in imports of raw materials. . (1=
Yes, 2=No) If yes, please specify the range (1=1-5%, 2=5-10%,
3=10-25%, 4=25% & above)
Price Related Information
The Price competitiveness of your products during the last five
years. (1= Increased, 2= Decreased, 3=No Change)
If Increased, please specify the range of increase in Price
competitiveness of your products in the last five years? (1=010%, 2=10-25%, 3=25-50%, 4=50% & above)
If decreased, please specify the range of decrease in Price
competitiveness of your products in the last five years? (1=010%, 2=10-25%, 3=25-50%, 4=50% & above)
Is there any increase in Price of your product during the last
five years due to increase in imports of raw materials? (1= Yes,
2=No) If yes, please specify (1=1-5%, 2=5-10%, 3=10-25%, 4=25%
& above)

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9.3.1

9.4.1

9.5.1

10.0
10.1

10.1.1

10.1.2

10.2

10.2.1

10.2.2

10.3

Is there any increase in Price of your product in last five years


due to increase in exports of raw materials. (1= Yes, 2=No) If
yes, please specify the range (1=1-5%, 2=5-10%, 3=10-25%, 4=25%
& above)
Is there any decrease in Price of your product in last five years
due to increase in imports of finished goods. (1= Yes, 2=No) If
yes, please specify the range (1=1-5%, 2=5-10%, 3=10-25%, 4=25%
& above)
Is there any decrease in Price of your product in last five years
due to decrease in exports of finished goods. (1= Yes, 2=No) If
yes, please specify the range (1=1-5%, 2=5-10%, 3=10-25%, 4=25%
& above)
Factors Affecting Productivity
The Labour Productivity (out put produced relative to number
of workers/employees used) of your firm during the last fiveyear (1= Increased, 2= Decreased, 3=No Change)
If Increased, please specify the range of increase in Labour
Productivity in your enterprise in the last five years? (1=1-5%,
2=5-10%, 3=10-25%, 4=25% & above)
If decreased, please specify the range of decrease in Labour
Productivity in your enterprise in the last five years? (1=1-5%,
2=5-10%, 3=10-25%, 4=25% & above)
The Total Factor Productivity (i.e., output produced relative to
all inputs used) of your enterprise during the last five-years (1=
Increased, 2= Decreased, 3=No Change)
If Increased, please specify the range of increase in Total factor
Productivity in your enterprise in the last five years? (1=1-5%,
2=5-10%, 3=10-25%, 4=25% & above)
If decreased, please specify the range of decrease in Tota factor
Productivity in your enterprise in the last five years? (1=1-5%,
2=5-10%, 3=10-25%, 4=25% & above)
Identify the main factors that have affected labour productivity in your
Enterprise in the last five Years (Please mention five)
1.
2.
3.
4.
5.

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10.4

Identify the main factors that have affected Total Factor productivity in
your Enterprise in the last five Years (Please mention five)
1.
2.
3.
4.
5.

10.5

Have you introduced any measures that have enhanced the


labour productivity of your enterprise in the last five years?
(1= yes, 2= No)
10.5.1 If yes, (Please Specify)

10.5.2 If No, Please indicate the reasons

10.6

Have you introduced any measures that have enhanced the


Total Factor Productivity of your enterprise in the last five
years? (1= yes, 2= No)
10.6.1 If yes, (Please Specify)

10.6.2 If No, Please indicate the reasons

11.0

11.1

Factors responsible for Competitiveness


The competitiveness of your company during the last five years.
(1= Increased, 2= Decreased, 3=No Change)
Availability of Raw materials for production?
1=Imported, 2=Within country, 3=Within Region/State, 4= Other
(Please specify)

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11.2

Availability of Quality Human Resource in the last five years


(1= Increased, 2= Decreased, 3= No change)
11.3
Does the present Educational system in the country is catering
to the industrys requirement? (1= yes, 2= No)
11.4
Labour relations in the state are productive? (1= yes, 2= No)
11.5
Are you satisfied with the quality of infrastructure (both Social
and physical) available in your state? (1= yes, 2= No)
11.5.1 If No, Please specify the physical infrastructure that requires
attention towards development and maintenance? (1= Road, 2=
Rail, 3=Airport, 4= Port, 5= Power, 6= ICT, 7= Cold storages &
warehouses, 8=Other) (Please Specify)
11.5.2 If No, Please specify the social infrastructure that requires an
attention towards development and maintenance?
(1=School, 2= Higher Education, 3=Technical Institution, 4=
General Hospital, 5= Specialized Medical Centres, 5=Other) (Please
Specify)
11.6
Are you satisfied with the Governments interface with
business/private sector ? (1= yes, 2= No)
11.7
Is your State government is friendly towards investors?
(1= yes, 2= No)
11.8
Are you satisfied with the extent of computerization of
government records? (1= yes, 2= No)
11.9
Corruption level in the government during last five years.
(1= Increased, 2= Decreased, 3=No Change)
11.10 Are you satisfied with the Transparency in your government?
(1= yes, 2= No)
12.0 Identify the main factors that have affected the competitiveness of your industry in
the last five Years (Please mention five)
1.
2.
3.
4.
5.

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13.0 What measures have you taken over the past five years to boost Competitiveness in
the domestic and export markets?

14.0 What are your views regarding the enhancement of Productivity and
Competitiveness in India? (Please mention)

15. Policy Interventions that are urgently required from the Government for enhancing
productivity and competitiveness of your sector (Please mention five)
1.
2.
3.
4.
5.
16.0. Any other comments : (Please specify )

Thank you

Name of the Official/Investigator:-----------------------------------------------Signature

: -----------------------------------------------------------

Place of Survey

: ---------------------------Date: ------------------------

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Annexure 2
LIST OF UNITS CONTACTED FOR THE STUDY
Rahman Industries Ltd., 184/167, Wajidpur, Jajmau, Kanpur 208 010, U.P.
Prachi Leathers Pvt. Ltd., C3, Udyog Nager, Near New CTI, Kanpur 208 022
Qaiyum Leather
Rohit Surfactants (P) Ltd., 98-B, Dada Nagar, Kanpur
Mirza International Ltd., 14/6, Civil Lines, Kanpur
United Exim, 14/106, Civil Lines, Kanpur 208 001
Unique International, 980-D, Wajidpur, Jajmau, Kanpur 208010
Model Tanners Ltd., Unnao, Kanpur
Star International Pvt Ltd., Star Towers 109/366-2, R.K. Nagar, G.T. Road, Kanpur
Superhouse Limited, 150 sr. Road Jajmau, Kanpur
Vinit Gloves Manufacturing Pvt Ltd., P-44 Udayan Industrial Estate, 3 Pagladangs Road
Kolkata
Poeja Exports A17/4 General Flowe Petedh Complex, Dapods Road, Owal Bhiwand:
Haryana-chemical Leather Limited, 1004 Bhipaji cama Bhawan, Bhikaji Cama Place New
Delhi
Ashma International X/2980, Gali No.4, Raghupura No. 2, Gandhi Nagar New Delhi
Indi Part Apparels (New name Think Fashion)220-A,First floor, Rama Market, Pitampura,
New Delhi
AlAlban International, B-97/B, Jwahar Park Devli Road, Khanpur New Delhi
T. abdul wahid&Co. M.C. Road, Solur, Ambur, Vellore Distt.
Model Tanners (India) Pvt Ltd.,c/o Sultantanners
M/s Overseas Leather Goods Co. Pvt Ltd.,, 61A/14, Beliaghata Main Road, Kolkata
Evergreen international Limited, 756, Udyog Vihar, Phase-V, Gurgaon
Dawar Footwear Footwear Ind. 12.5 K.M. agra Delhi Road, Sikandra, Agra
Sara Ladher, 86 Bajnnai Ko.7 sr., Pannel Chennai

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Basant Overseas, Opp. Amar Ujala Press, NH By-Pass Road, Agra


Gupta Overseas, Bye Pass Road, Agra, India
Sanghavi Shoes Accessories Pvt. Ltd., 11, Hari kurpa Raod, 10th Road, Chembur, Mumbai
Ramjee Leather Supplies,A-Arumabakkam, Chennai-106,TN14, Sidco Indl Estate
Mayur Uniioquoters Ltld.28, IV Floor,Laxmi Complex, Jaipur.
R.P. Rubber Products Pvt. Ltd.,B-111C, Road No.9-C, VKI, Jaipur
Nagna Foot Exorters, 949, Nnak Ki Chakki, Rehana Nagna Cmahak, Raniganj Bazar, Jaipur
Sanjay Leather Factory, S-258, G. Road No 5F1Vishvakarma Indl Area, Jaipur
T. Abdul wahid& Co. M.C. Road, Solur, Am,bur, Vellore. Distt.
Iman Exports, 5, Nabikham subeden street, periament, Chennai
Bachi Shoes (India) Pvt. Ltd., 15, Sami Street, Periamet, Chennai-600 003
Franco Leone Shoes P. Ltd., 122 HPSIDC, Baddi Solan
C & E Ltd., Plot No. 120, Industrial Area, Baddi
Oscal Leather (P) Ltd., E - 221, Industrial Area, Phase VIII B, Mohali
DS Shoes Co., 20B EPSP Phase I Jharmajr
C&E Ltd., Plot No. 69 B, HPSSDC Baddi
Kadhi Ashram Gram Silpa, 192-193, 17C, Chindigarh
Drisn Shoes, I.A. Phase-I Pancnkula
Phulkari Punjab Govt. Emgrium , 27, Sector-17E Chandigarh
Reeaok, Vin Dherowal
M&B Footwears Pvt Ltd.,, 79 CPSP Phase-I Inarmajri. Baddi
VBL Innovations Mib.III) Jharmajri .M.P.
Kayishema Creatives 4578, Ist Floor, Mahavir Bazar, Cloth market Fatechpuri, New Delhi
AVG 12pex Pvt Ltd.,, 37, Rani Jhansi Road, New Delhi
Kirpal Export Overseas, BP-130, shalimar Bagh (West), New Delhi
Bagga Industries, 5/2 Maya Puri, Industrial Area, Phase-2, New Delhi
Trane workel trading co. 29994/2A, Street No. 17, Ranjit Nagar, New Delhi
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Productivity & Competitiveness of Indian Manufacturing Leather & Leather Products Sector

Balothia Shoe Maker, Opp. Sawai Man Singh Town Hall, Hawa Mahal Bazar, Jaipur 302002
Yoro Leathers, 80. MES Road, Ganapayhi Puran, Tambarm, Chennai
UJP Enterprises, 63, MES Road, East Tambram, Chennai 600059
Baba Center, 9-1-A1, Road, Indistrial Nacharan, HyderABAD-76
Sterling Shoes, Plot No. 5-A/8, IDA, Nacharam, Hyderabad 500076, AP

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Productivity & Competitiveness of Indian Manufacturing Leather & Leather Products Sector

Annexure - 3
Methodology Adopted for Partial and Total Factor Productivity
Estimations
Productivity can be measured in terms of both partial and total factor productivity methods.
Most commonly used partial productivity measures are Labour Productivity and Capital
Productivity estimations. The partial productivities are measured as a ratio of Gross Value
Added per worker or per unit of capital invested.
The partial productivity methodology is based on the premise ceteris paribus that only two
factor inputs used in the production process such as labour and capital. Details regarding the
data construction and estimation procedures are given as below.
A. Labour Productivity

Labour input is considered as the total number of persons engaged in the production process.
The data has been compiled from Annual Survey of Industries summary results for factory
sector data base for various years. The Gross Value Added data has been first deflated by the
whole sale price index for the leather(Broad Category). The formula for calculating the labour
productivity can be given as follows:

Labour Productivity (LP) = ((Gross Value Added/Price Index) X 100)


No. of Persons Engaged

Labour Productivity Growth

Once the labour productivity has been calculated, we can estimate annual labour productivity
growth using the growth rate estimation formula :
Labour Productivity =
Growth

Labour Productivity t Labour productivity t-1 100


Labour Productivity t-1

Labour Productivity Growth Index:


To understand the trends in Labour Productivity Growth, we can construct year to year
growth rates as an index of Labour Productivity Growth Rate. Initial value of the series is
considered equal to 100 and the subsequent years Labour Productivity Growth Rates are
added to it cumulatively. This will provide us an index of Labour Productivity Growth for the
textile and garment sector for the years starting from 1995-96 to 2005-06.

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B. Capital Productivity
Since capital investment is given as the book value in the ASI data, we have to estimate the
capital stock in operation for every year. The Capital stock estimation follows the procedure
given below.
Capital Stock Estimation

To calculate capital stock we have used Perpetual Inventory Method. Capital stock has been
estimated from the book value of Gross Fixed Capital compiled from the ASI Database.
Fixed capital data from ASI for the textiles and garments sector taken for the years 19952006.
The book value of fixed capital at 1995-96 is multiplied by Gross net ratio of capital for
getting initial year capital stock.
Incremental capital during the year 1996-97 at constant prices (deflated with the machinery
and machine tools prices at 1993-94 prices) is added to the initial year capital stock of 199596 for getting the capital stock for 1996-97at constant prices.
Incremental capital = ((Fixed capital 1996-97 - Fixed capital 1995-96)
To calculate the capital productivity we have divided Gross Value Added at constant prices
by the estimated fixed capital. The formula used to calculate the capital productivity is as
follows:
Capital Productivity=

Gross Value Added at constant prices


Capital stock at constant prices

Capital Productivity Growth


Capital Productivity
Growth
=
Capital Productivity t - Capital Productivity t-1
Capital Productivity t-1

Capital Productivity Growth Index


As in the case of Labour Productivity Growth Index, Capital Productivity Growth Index is
also constructed on a scale 100.
Gross Value Added Growth Rate =

GVAt GVA t-1


GVA t-1

x 100

Capital Productivity Growth Index:


To make the index of Capital Productivity Growth Rate, first of all assume the initial value of
series equal to 100 then add subsequent terms of the Capital Productivity Growth Rate
cumulatively. This will give us the index value of Capital Productivity Growth Rate.
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Productivity & Competitiveness of Indian Manufacturing Leather & Leather Products Sector

C. Total-Factor Productivity Growth (TFPG)


Total Factor productivity Growth has been estimated using the Divisia index method. Here, it
is considered that Total Factor Productivity Growth is the result of technical progress.
Technical progress or TFPG is estimated as a residue of the difference between output growth
rates and input growth rates.
.
.
TFP = GVA [WL x Labour Productivity Growth + WK x Capital Productivity Growth]
Where
WL + WK = 1
and
WL = Wage Share in Total Cost
WK= Capital Share in Total Cost
Total-Factor Productivity Growth Index
As in the case of Labour and capital productivity , Total Factor Productivity Growth Index
can also be constructed with the base 100 for the initial year and adding the subsequent
growth rates cumulatively to it.

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