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S. Gopikrishna Warrier

`We have a duty level of about 65 to 83 per cent on Chinese goods. With such protection, what else is needed? We have to stop and think why, despite this high duty, Chinese goods are hitting the Indian market. We have been under protection for too many years'

Mr Rafeeque Ahmed, President, All-India Skin & Hide Tanners & Merchants Association.

IMPORTS from China are not a serious threat to the Indian leather industry. In fact, it provides an opportunity for the industry to do some intro- spection, says Mr M. Rafeeque Ahmed, President of the All-India Skin & Hide Tanners & Merchants Association.

In an interview, Mr Ahmed said that Chinese products are competitive due to inherent strengths, and to compete with them, the Indian industry needs to consolidate. Excerpts:

What has been the effect of Chinese imports?

Chinese imports have not affected the Indian leather industry as much as it has hit other industries. I don't think China will in any way be able to compete with India in leather. The affected area will be ladies' footwear, and that too in non-leather synthetic footwear. Not much development has taken place in ladies' footwear in India, and particularly so in the non-leather segment.

Another item likely to come in for competition is the handbag, again non-leather. This is an area Chinese may be able to penetrate the Indian market. All this is happening because of the absence of synthetic material in the Indian market. They have been considered a luxury in India and have attracted heavy duty and taxes. Any product based on petroleum is much cheaper in China. They are the largest suppliers in the world for non-leather products and have a high variety.

Will this have an impact on the domestic sector marketing of leather products. Conventionally, the Indian leather industry has been banking more on exports.

The problem is our leather industry is based on exports. We estimate our exports to be around Rs 10,000 crore, out of a total industry turnover of Rs 20,000 crore. So 50 per cent of the Indian leather and leather products is exported - more likely the better qualities. The 50 per cent domestic market is divided into traditional leather products (mostly chappals) and artefacts.

Lately we have seen a lot of handbags coming into the market due to changing dress habits. Slowly this is creeping into the rural areas also. Today there are very few popular brands other than in shoes. In shoes there are some good, popular brands. They are doing good business within India.

But I must say that we have protection from Chinese imports to India. We have a duty level of about 65 to 83 per cent. With such protection, what else is needed? We have to stop and think why, despite this high duty, Chinese goods are hitting the Indian market.

Is it because we have not been concentrating on the domestic market?

Our domestic market was not at all well-organised. There is hardly any advertising in the country, except by a few big footwear companies. An advantage for Chinese manufacturers is that they don't make their products for India. They do it for their export market - to the US, some European countries and West Asia.

They don't have to invest in new infrastructure to sell in India. So they are able to offer it at a better price. So probably they are offering at such a price that even with the duty they are competitive.

There has been no dumping in footwear. I still feel that the Indian manufacturers are too nervous because we have been protected for so many years that we feel threatened when any imports come in.

Do you think the Indian industry has inherent strengths to compete with the Chinese?

Yes, we have. The Chinese are not like other international brands that create a market and sell their products. They are not big companies who want to come in, sit down here, open offices, and brand and market products. The Chinese are not very strong at that. They have only been manufacturing for the branded people abroad.

We have to consolidate. We have to introspect why we are costlier than the Chinese. Why are we not able to offer to our Indian consumers more products, more variety?

Are we costlier only because of the Government-determined prices in China, or is it some other factor?

There is no Government-determined price in China. Entrepreneurs fix their price. It is not that everything is booming in China. Lot of shoe factories went bankrupt last year. It is pure competition. Only thing is that they are able to manufacture in bulk, so they are able to price their products well. Their units work in two or three shifts, so that their overheads are low.

I went to China last month. I studied for a week, visiting all the major shoe factories. I was amazed by the productivity levels there and long hours of working. I came out with an idea that definitely they will be cheaper. Also the support industry in leather and leather products have all shifted to China - from Korea, Taiwan, Europe, the US. So the supply chain is very quick. They don't depend much on imports. So the product ultimately becomes competitive.

So what you are saying is that essentially Chinese goods are competitive on their strength. There is a belief that Chinese goods are competitive due to Government support.

Absolutely not. I have studied that. What they have done is that the local municipal administration provides you with a good supply of electricity at a nominal price. These are the subsidies that they expect. They can even build a factory for them. If you go to a rural Chinese location and say that you are going to start a shoe factory and will employ 2,000 people, the local authorities will happily make a factory according to your drawing and give it to you at a nominal rent.

The Government doesn't come into business at all. The companies can hire and fire the labour. This makes them very competitive. If they are not satisfied with two workers, they can call the labour department and they will replace them with two new workers. They make it very easy for the manufacturers.

Is it so in all over China, or only in special economic zones?

It is so all over China. Factory building is allowed only in the rural area. They attract you to come. The only condition is that the industrialist has to employ local people. Another advantage is that decision- making is given to the local authorities. They don't have to go to Beijing for decisions. That makes the decision-making quicker.

So if at all we feel that there is an incentive, it is within expected norms. I don't think that a controlled price or incentive makes them competitive. It is pure business proposition and manufacturing scale that make them competitive. And their productivity is very high.

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