Leather industry seeks Rs 750-cr corpus, relaxed lending norms

Written by Joseph Vackayil | Chennai | Updated: Jun 28 2009, 03:12am hrs
The leather export industry, hit by the fall in demand for fashion and lifestyle products in the European and the US markets, is looking at the Union Budget for financial and fiscal support. In its pre-Budget memorandum, the industry has requested for the creation of a Rs 750-crore corpus fund to provide soft loans to the industry, mainly for infrastructure development and marketing.

Eyeing easy and cheap finance from the banking sector, the Council for Leather Exports (CLE) is looking for expanded credit with relaxations in lending norms. The council also wants the interest rates on term loans to be lowered to 5-6%, both for existing, as well as new ones. It has also asked for the rates on restructured loans and working capital term loans for exports to be brought down, at least to the level of the present normal interest rates of 8-10%.

Other demands that the industry is pitching for are: Margins charged by banks on LCs be brought down from 25% to 10%; interest rates on overdue export bills, which are currently very high, be lowered to 18%; amendment of delinquency/NPA norms on restructuring of loans from the current 90 to 270 days; increase the packing credit (PC) limit to 1/3rd of the turnover, instead of the present 1/5th; foreign bill discounting (FBD) facility to be out of the computation of bank limits; extension of the Interest Subvention scheme for another 2 years, interest rates of BPLR at minus 4.5%, and improve the credit/ deposit ratio at major leather production centres, predominantly located in rural areas.

The sector also wants the finance minister to abolish fringe benefit tax on exports, exempt service tax on post-manufacturing services and create a mechanism to ensure the speedy refund of VAT.

Expectations relating to Central excise include the declaration of the footwear component industry as an infant Industry and the grant of an excise holiday of 5 years; exemption of 8% excise duty/CVD on machinery & equipments used in leather and leather products sector, including the footwear sector; exempt the 8% duty on footwear and leather products; reduce the duty on raw material inputs required for manufacturing footwear components from 8% to 4% and waive the excise duty (8%) and VAT (12.5%) on safety footwear with protective steel toe cap. The industry also wants the government to initiate promotional measures like the enhancement of duty-free limit under DFIS from 3% to 5% of FOB value of exports in the previous year and implement DFIS at 3% for finished leather manufacturer exporters for import of essential chemicals.

CLE chairman Habib Hussain had told FE that like other export industries, the leather sector is also facing the adverse impact of the global meltdown. Our hopes of touching $4 billion in exports by March 2009 were dashed, and the figure may now stand at $3.54 billion. Data available with CLE shows that the fall in the first three months of 2009, compared with the figures of 2008, is alarming. Exports in January 2009 stood at $288.27 million ($340.93 million in 2008), in February it was $235.72 million ($316.48 million) and in March 2009, $202.69 million ($296.08 million). But this is not all. The spree of cancellations and cuts in export orders are continuing. At the same time, the Chinese are aggressively booking orders at highly discounted rates. We fear a very bad year ahead and exports may fall further, affecting production and employment.