By Ayushi Gupta
Indian exporters are scrambling to assure global clients like Zara and Giorgio Armani that their leather goods shipments would be dispatched. All this is in the midst of a government crackdown on cattle slaughter which threatens the lucrative leather industry. Currently, the top global brands that source from India include Armani, Hush Puppies, Zara, Tommy Hilfiger and Marks & Spencer, among others.
A contentious declaration issued
On May 27, the environment ministry notified a clampdown on the sale and purchase of cattle (including cows, bulls, buffaloes, bullocks, calves, heifers, steers, and camels) at animal fairs and livestock markets. This was done to ensure the prevention of animal cruelty, illegal trade and smuggling of animals. A gazette notification by the ministry had stated that no one will be allowed to bring cattle to an animal market unless they have a written declaration. The declaration must state that the cattle will not be sold for the purpose of slaughter.
This rule may adversely impact the supply of cattle skin to the leather industry which uses buffalo hide to make leather products. The system of farmers bringing an unproductive animal for slaughter and selling it at the best price has been disrupted and the supply chain for leather stands disturbed.
The crackdown on slaughterhouses has resulted in a production cut of 40 percent in the leather industry. This cut comes at a time when the industry was expected to touch $27 billion in the next five years from the current $13 billion.
The Indian leather industry: A sector of growing significance
The leather industry has a place of prominence in the Indian economy due to substantial export earnings and growth. It ranks eighth among Indias top export earners. The domestic industry has made its mark by being counted in the top 5 leather industries globally. In 2015-2016, Indian leather exports were valued at nearly $6 billion, according to the Council for Leather Exports’ data.
Furthermore, the Finance Minister himself announced plans to launch schemes for the industry in the Budget of 2017-18. From this, it is clear that the growth of the leather industry remains a key focus area under the ‘Make in India’ initiative of the government. However, this growth might be difficult to materialise if the environment ministry’s policy on the slaughter of cattle continues for long.
Slaughter policy and its implementation: The harbinger of adverse effects?
About US$ 6.3 billion worth of raw material comes from slaughtering cattle. If the ministry’s policy is implemented, there will be a shortage of raw materials. This shall prompt the manufacturers of leather goods to import these materials. What will follow is an increase in the prices of leather goods. As of now, the government has allowed the import of cow/bull hide with zero per cent duty to help the leather exporters. However, the traders are expecting the rates of buffalo hide to jump by at least 30 percent. This will consequently reduce the global competitiveness of the Indian leather industry and a fall in profitability will follow.
Moreover, the Indian leather industry provides formal and informal employment to 2.5 million people, mostly from disadvantaged communities. It is estimated that around eight lakh Dalits earn a living through the sale of the skin of dead cattle. A closure of the countrys slaughterhouses could leave a couple of million people jobless, affect its allied industries (the meat industry ) and choke important revenue streams.
Road ahead for the Indian leather industry
The Indian leather industry is ranked second in terms of leather garment production in the world. It also accounts for 9 percent of the worlds footwear production. However, the environment ministry’s notification has created uncertainties in the leather industry. It has sent the international fashion houses in a jittery. They have begun contacting suppliers in India to enquire about their commitments on supplying leather products.
Ramesh Juneja, the eastern regional chairman of the Council of Leather Exports, said that the exporters in the region have been flooded with calls from Italian intermediaries, who work for brands such as Prada and Gucci. Although the industry has inventories which will last a couple of months, traders could face a shortage of raw materials for the upcoming winter season. This is when Indian manufacturers typically work overtime to fulfil international orders.
The local suppliers, many of whom are running small scale units, fear that the business may shift to Bangladesh or Vietnam. There is also a high possibility of traders importing leather and shutting their shops down in the process. Furthermore, this policy also runs counter to Modis goal of creating jobs and inviting foreign investment. The centre had recently announced investments worth 400 crores in the leather and footwear industry. This announcement was made with an aim to boost manufacturing, exports and employment in these sectors.
However, the purpose of these investments would be defeated if the clampdown on cattle slaughter continues. A huge commerce activity is at stake if these rules are strictly implemented.