Leather industry rides recession so far, fears export decline

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Chennai, Nov 17 : The leather industry, which has weathered the global meltdown so far, fears that there would be a substantial fall in orders in the coming months. Retail sales at major consumer-markets in Europe and the US in the next few weeks would decide the order-book for the future.

Industry leaders fear that most buyers might delay orders for the coming season to the extent possible and this would impact the manufacture and export of leather products in India. “So far, the going has been good. But we fear a 30%-fall in orders in the last quarter of this financial year,” Mukhtarul Amin, chairman, Council for Leather Exports (CLE), told FE.

“Customers are generally delaying orders till a clearer indication of the future is known and that is why there is apprehension about the coming months. Certain units have begun to plan in terms of a shorter work-week because of this,” Habib Hussain, vice-chairman, CLE, said. Amin fears that the worst fall would be in demand for footwear and leather goods from major markets in the US and Europe.

Export of leather and leather products during 2007-08 was at $3.47 billion. Of this, 42.44% ($1.47 billion) was from the export of leather footwear and components. Export of Leather goods accounted for 22.57% ($785 million). These segments would be the most affected by the ongoing economic crisis in western markets. Hussain, CEO, Tamil Nadu-based AVT Leather, said, “The leather industry in Tamil Nadu has not been significantly affected till date. However, there are apprehensions about the future. Most factories in the footwear sector are in the middle of the production season and so far we have not seen any significant fall in orders. There have been cases of customers asking factories to hold back certain shipments, which they might delay.” He said that the season for leather goods is over and the goods have been shipped out. “It all now depends on retail sales in Europe and the US, which so far have not been very encouraging.”

Power cuts in many states had affected the industry very badly, Amin said. “In Tamil Nadu, the most severe hurdle we have faced so far and continue to suffer from is the shortage of power which has crippled production and added enormously to production costs. The other major hurdle is the high interest rate of working capital,” Hussain said.

CLE officials said that the global economic crisis, high expenditure on electricity and increase in interest rates on working capital and term loans have been squeezing out the margins of the leather industry. They said that the government and banks should extend fiscal and financial support to the industry during these difficult times.