Budget 2022: What’s in it for the Leather Sector?

The Union Budget 2022-23 announced yesterday presented the government’s plans to increase capital expenditure by 35% and fuel growth for an economy recovering from 3 waves of the COVID-19 pandemic. DPIIT is keen to mobilise all initiatives which continue to focus on the development of the leather and footwear sector and industry at large.

An array of exemptions were announced in the Budget which will be given on items such as embellishments, trimmings, fasteners, buttons, zipper, lining material, specified leather that may be needed by exporters of leather garments and leather footwear, thus overall incentivising exports.

India is the 2nd largest producer and consumer of footwear in the world. The Leather & Footwear industry is a high employment generating industry with close to 4 million workers. India also accounts for 13% of world’s hides and skins production.

In the leather and footwear industry, there is a lack of availability of good quality components which makes India highly dependent on countries such as China for importing inputs. Currently, almost all raw materials and footwear components are imported in India, owing to little or no domestic manufacturing of such inputs. High duties on footwear components had also resulted in high costs of manufacturing for the producer which inhibited not just profit generation but also design innovation of products.

The Government has taken a major stride to ensure building of a conducive industry ecosystem to transform India into a global footwear manufacturing hub. The duty exemptions announced in this year's Union Budget on items used by leather footwear and garment manufacturers will not just boost local manufacturing of footwear and leather accessories but also increase profit realization for the industry due to the reduction in manufacturing costs to the producer.

The extension of the date for commencement of manufacturing operations for newly incorporated domestic manufacturing companies from March 31, 2023, to March 31, 2024, for availing a concessional corporate tax rate of 15% will also promote investments in the leather and footwear industry.

Industry estimates suggest that the leather and footwear industry is looking to expand its export turnover from $ 5.09 Bn in 2019-20 to $ 10 Bn by 2025-26 and the domestic industry turnover from $ 12 Bn in 2019-20 to $ 20 Bn by 2025-26. The announcements made in the Union Budget 2022-23 will immensely help in achieving these targets.

The overall industry shared positive feedback on the Budget announcements for the Leather industry, especially in the light that the duty on key components has been waived off against a bond, under which the product must be prepared and exported within six months. Wet-blue, a key chemical has also been made duty free.

The announcement of 65% procurement for defence requirements by small scale industries will also witness spill-over benefits for the leather industry with increased in supply of shoes and leather gloves to the defence sector.

Building a self-sufficient component ecosystem in India is the long-term goal for the leather and footwear sector but till it is achieved, India is still highly dependent on countries such as China for import of such components. This exemption will give an impetus to the local manufacturers to use high quality materials and lower overall costs of production. This will not just allow producers to increase production volumes but also incentivise to boost the exports of footwear and leather accessories.

By Mishika Nayyar, Neharika Mirakhur, Seerat Kohli