Double whammy for leather exporters.

CHENNAI: Still to come out of the global recession, the onward march of the rupee has come as a double whammy for the leather exporters. With 10% of $3.59 billion exports headed for the US last year, the appreciation of the rupee will drain the already low margins of Indian leather industry.

Germany, Italy, the UK, the US, Hong Kong, Spain, France, the Netherlands, UAE and Australia account for nearly 75.3% of India's total leather exports. And 70% of these contracts are dollar denominated. "Already there is intense price competition and we are operating on very low profit margins. If the rupee keeps getting stronger, the margins will be eroded further," an industry official told TOI.

When the rupee appreciated to similar levels in 2007, the industry suffered a loss of about 40% in revenues. This time, the hit will be much larger because the recession has already cost many orders, says another industry official. The leather industry's annual revenues are about $7 billion and exports touched $3.59 billion in 2008-09. Exports touched $2.12 billion during April-November 2009 period.

The Indian leather industry constitutes just around 3% of the global market and employs about 2.5 million people, according to the Council for Leather Exports.

From a growth of 16% in 2007-08 in exports, the growth dipped to just 1.41% in 2008-09 – the recession year. According to the Council for Leather Exports, in 2009-2010, exports would register a negative growth of 8.3%.

With the finance minister not extending policies like interest subvention to the sector in the Budget, the stronger rupee will further dampen the industry. "We expect some measures to figure in the Exim Policy," according to an industry body official.

Commerce minister Anand Sharma had indicated earlier this month that his ministry was pursuing the issue of extending the 2% interest subvention scheme to sectors like chemicals, leather, textiles and engineering, with the finance ministry.

Source : TOI