Leather exports in tatters after Re hiding
For the ‘Flat World’ fraternity, a stronger rupee is a great opportunity to import machinery and ramp up capacity. Now, try telling that to apparel, leather or gems & jewellery manufacturers and labourers in Panipat, Kanpur of Surat. As the rupee continues to soar against the US dollar, exporters are losing their shirts; the government estimates that a million people have lost their jobs over the last one year. In this three-part series, ET reporters travel to a few export hubs across the country to gauge how the ‘Super Rupee’ has wrecked the local economies and lives of workers. We kick off this series with Man Mohan Raireporting from Kanpur& Moradabad on the plight of the $ 3-billion leather export industry. NEARLY 250 workers at Kanpur’s Inyati’s Footwear were eagerly awaiting the return of managing director Mahmood Alam from a 15-day business trip to Europe, hoping for some good news during an otherwise gloomy Diwali and Eid season. This year, the last-minute festival shopping and celebrations in the heart of India’s leather trade in and around Kanpur and the neighbouring town of Unnao were replaced by streetcorner discussions on the latest US dollar–rupee exchange rate. In an indication of the tough times ahead, most companies there held back Eid bonuses, new clothes and even stainless steel utensils during Diwali, a break from tradition. The rupee’s 15% rise in one year has almost entirely eaten away the margins leather exporters made by shipping goods to the US. Many shutdowns And US exports account for nearly half the region’s leather trade revenue. As a result, most companies have stopped taking fresh orders from the US and are operating on a single shift daily compared to three when things were rosy. “Such is the concern among workers that most of them are willing to take a wage cut but pleaded that I do not refuse any orders that manage to come our way,” says Mr Alam. Already, Inyati, a Rs 16-crore firm, has laid off 50 contract labourers. The situation is gloomier in bigger export houses. Nearly half a dozen units have already shut shop, wilting under the mounting losses. Mr Alam says the situation is alarming and the order books for the coming season remain halved. “The appreciation of the rupee has led to our profits being eaten away. But even if we want to continue manufacturing just to remain afloat and save ourselves from closure, it is difficult as the buyers are finding our goods to be more expensive as compared to China,” he says. Kanpur’s leather goods makers say they could have absorbed a 5% devaluation of the dollar but a rupee rally like the present one has simply put them out of business. Manufacturers are only fulfilling their earlier export commitments at losses, and new orders for the next spring-summer collections that would be placed by this time of the year have now fallen by as much as 40%. RK Jalan, CEO, Arvind Footwears, a Rs 24-crore Kanpur-based export house, is doubly distraught. He has just lost out on a prestigious order from Wal-Mart––something which he’s been working on for the last few years. “We had managed to bag this export order from Wal-Mart two years back. We supplied 130,000 pairs of shoes worth Rs 3.75 crore to Wal-Mart last year. But the rupee appreciation has led to us losing out this time round. Despite being more than satisfied with our products, Wal-Mart found it better to source shoes from elsewhere,” says Mr Jalan. Also, has also been forced to pare the workforce from 600 to 450. “In the 32 years that I’ve been in the leather business, there hasn’t been a crisis this bad,” says Mr Jalan. Many footwear and leather goods makers in Kanpur had been ramping up capacity over the last three years anticipating greater business. With the multifibre arrangement in place, exporters hoped to cash in on bigger orders coming from the likes of Wal-Mart and JC Penney. Inyati’s Mr Alam is worried how he’ll service the loan he took to install new machinery and equipment. His company was working on a joint venture with German and Italian firms but now that too is on hold. Mukhtarul Amin, the chairman of Council for Leather Exports says India’s loss has been the gain for countries like China, Sri Lanka, Vietnam and Pakistan, and even China. Mr Amin is aware of at least two leather export units in Kanpur that have been forced to shut down due to the rupee’s rise. “India’s leather exports would come down this year from $3 billion to less than $2 billion if no immediate steps are taken by the central government,” he says. Mr Amin suggests the government should allow Foreign Exchange Fluctuation Allowance to the extent of 6.22% of free-on-board (FOB) value to tide over the crisis. Some leather exporters also talk of the government facilitating sales in the domestic market so that they can remain afloat. Elsewhere in Moradabad, the brassware exports hub in UP, things are just as bad. Handicrafts and brassware exports from the region are estimated to be around Rs 800 crore. According to Suresh Gupta, a handicrafts exporter and the chairman of Indian Industries Association, a representative body of SMEs, the bank accounts of about 100 brassware export companies there have been declared non-performing assets as they are faltering on repayment of loans. “Business is down by as much as 20%. We’re staying afloat largely because of orders we’d signed last year. At the moment, there isn’t even a ray of hope.”