Caution Recommended for Leather Industry

The last financial year proved to be dismal for the Indian leather sector as trade volumes remained low. Apart from the contraction in export orders, the slump in domestic demand added to the troubles of SMEs engaged in this sector.

Margins of exporters shrunk drastically as shipments of leather and leather products declined. Besides recessionary pressures, high export duties and currency rate fluctuations in the global markets also aggravated the woes of the export segment.

Due to consistent setbacks, the leather export sector recorded flat growth for 2008-09. Moreover, experts have dismissed the possibility of any major turnaround in the current financial year as well. Given the challenging times, industry players have expressed cautious optimism about their prospects for 2009-10.

Dwindling export volumes

In 2008-09, the export of leather and leather products increased to $3.53 billion from $3.45 billion in the previous financial year, recording a meagre increase of 1.71%.

For the first 6 months, the industry registered a good performance as export volumes remained steady. However, the market scenario changed dramatically during the second half of the last financial year.

"The small and mid-sized units in the Leather Export sector did good business during the first two quarters of 2008-09. However, profit levels plunged in the wake of the slowdown in demand in both the domestic and international markets. This compelled several leather units to pull down their shutters," said D Dutta, proprietor of Leather World, a small-sized exporter of leather items in Mumbai.

According to the Council for Leather Exports (CLE) data, the leather industry registered a growth rate of 20% during the first half of the last financial year. However, beginning in October 2008, small and mid-sized players struggled to stay afloat as the latter part of the year saw a decline in both revenues and export growth.

The Indian leather industry outlook seems bleak for the first two quarters of 2009-10 and there are no signs of improvement in the global market.

"The first few quarters of the present financial year are unlikely to see a revival in overseas trade volumes and domestic demand. A major recovery will happen only after the global market picks up momentum," commented Irfan Ahmed Qureshi, Director, Leather Cheme Industries, a mid-sized leather manufacturer in Indore.

Going by the industry forecasts, SME Leather Manufacturers need to realign their business strategies and take necessary measures to restructure their operations. Adequate government support and removal of excise duties can also help the leather sector overcome the existing challenges.

Since the market scenario is expected to remain grim in the next few months, industry players have been recommended to exercise prudence.

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David Parks is a well known author and has written articles on Automobile Manufacturers, B2B Portal, Rubber Manufacturers, suppliers, Manufactures and many other subjects.