The appreciation of rupee has drastically influenced leather exports industry, which is yet to come out of recessionary effect. With 10 percent of $3.59 billion exports, headed for the US last year, appreciation of the rupee will further shrink the already low margins of the Indian leather industry.
Around 75 percent of India's overall export deals are signed with countries such as Germany, Italy, UK, US, Hong Kong, Spain, France, Netherlands, UAE and Australia. Seventy percent of these deals are dollar denominated.
Leather industries are witnessing strong price competition and are therefore functioning on very low profit margins. These margins will erode further, if rupee continues to get stronger.
In the year 2007, when rupee appreciated to similar levels, the industry witnessed a loss of 40 percent; whereas this year, losses are likely to increase due to recessionary impact on a number of orders.
During the 2008-09 fiscal, leather industry exported goods worth $3.59 billion and its annual turnover stood at $7 billion. While during April-November 2009, the exports amounted to $2.12 billion.
As per data provided by the Council for Leather Exports, the Indian Leather Industry accounts for just 3 percent in the world market and provides employment to around 2.5 million people.
In the year 2007-08, the industry witnessed 16 percent growth; while in 2008-09, during global economic slowdown, this growth dropped steeply to 1.41 percent. And the Council for Leather Exports predicts that during 2009-10, these exports would witness a downfall of 8.3 percent.
A stronger rupee appreciation, combined with the incentive of interest subvention, not being continued in the new fiscal, will dampen the industry more. However, the industry expects some measures to be announced in the Exim Policy.
In this regard, the Commerce Minister, Anand Sharma stated that, his ministry along with the Finance Ministry is taking measures to extend the 2 percent interest subvention scheme for sectors such as, leather, textiles, chemicals and engineering.
Fibre2Fashion News Desk - India