India was witnessing sharp deceleration in the pace of growth in exports of leather and leather products from robust 16.0% growth in FY 2007-08 to mere 1.4% increase in FY 2008-09, which gave way for 5.5% fall in FY 2009-10. Fortunately, this deceleration has given way for 13.8% growth in April 2010-January 2011.

The aggregate financials of 10 players in the leather industry recorded a 10% increase in profits to Rs 22 crore on 19.7% rise in net sales to Rs. 523 crore in the quarter ended December 2010. The operating profit margins declined by 100 basis points to 10.7% in the quarter ended December 2010 from the 11.7% in the previous quarter ended December 2009.

Based on the whole sale price index of leather and leather products, we find that the price levels have eased sequentially in February 2011, from January 2011 levels. In general, the prices are lower on y-o-y basis. Bucking the general weak trend, we find that the high margin leather footwear segment has witnessed improvement in price levels, with 2.7% fall in October and November 2010 giving way for 2.3% fall in December 2010 and to moderate 4.0% rise in January 2011 and 3.5% rise in February 2011, on y-o-y basis. The deceleration in the growth in February 2011 is in line with sequential fall in the entire leather and leather product segment.

India witnesses tough fight in the global leather and leather product sector especially from China, which uses cheaper pig leather. In the process, sizeable portion of the global demand for low cost leather and leather products are dominated by China. Where quality, finish and designs matter, India is able to hold on to its niche markets, especially in quality conscious Germany, Italy, UK etc. But the country has been loosing its market share in USA, wherein our exports fell from US$ 359.22 million in FY 2008-09 to US$ 296.23 million in FY 2009-10.

India is trying to broad base its leather exports with strong growth in France, Netherlands, Belgium, Saudi Arabia, Sweden, Japan, Denmark, Germany, UAE, UK etc. The focus product and focus market schemes of the Ministry of Commerce & Industry are expected to facilitate deeper penetration in stronger holds and expansion of coverage to newer markets. Besides, the finance minister, in the Union Budget has proposed to set up seven mega leather clusters in the year 2011-2012 This will accelerate the development of leather products in India, both for the domestic and export markets. Also, the rising share of leather footwear exports and improving pricing power therein is commendable, considering relatively higher value addition in this segment. Overall, the leather and leather product sector's recovery is shaping up quite well in the short term.