Even as the cut in excise duty on leather footwear announced in Budget 2015-16 could offer a fillip to the domestic leather industry, the impending restrictions by the European Commission on leather products with higher than permissibly levels of hexavalent Chromium (Cr VI) could be a major dampener for exporters in the sector.
While bigger players in the largely unorganised leather business claim to be geared up for meeting the challenges that arise from the Eurozone restriction, which will be effective from May 1 this year, experts point to these restrictions potentially disrupting India’s leather exports, considering that 42.25 per cent of the country’s leather exports are headed to the European Union. The total export value amounted to $2.49 billion for the year 2013-14.
While around the world, trivalent Chromium (Cr III) containing substances are used in 80-85 per cent of leather production as tanning agents, exposure to sunlight or changes in the ‘ph’ levels oxidises the trivalent Chromium to toxic Cr VI. In January 2012, Danish authorities had submitted a dossier to the EU, stating that Cr VI is known to cause strong allergic reactions in humans. Based on this, the EU issued regulation EU 301/2014, which effectively stipulated that articles with leather parts that come into contact with the human skin should not contain 3 mg/kg or more of Cr VI. Germany was first to restrict the presence of Cr VI under the Germany Ordinance on Commodities in 2010. Incidentally, Germany is the largest importer of Indian leather products from the EU and accounted for $763.55 million in imports during fiscal 2013-14.
Many domestic players are of the view that this regulation could increase the cost of production. “There has been a 10 per cent increase in our cost of production due to this regulation,” said KG Sharma, partner at FYNA, a small leather exporting firm. “Now we have to dry the leather in heating chambers as opposed to drying it out in the sunlight, which was more convenient for us,” he added. Muhammad Sohail, managing partner at New Decent Footwear Industries echoed the same concern,” Our costs have gone up by 7 per cent and the frequent tests we have to undertake to check the Chromium levels gets expensive and tedious.”
Tests undertaken for detecting Cr VI and other substances on the restricted list are costly and time-consuming. “It takes 4-5 working days to complete Restricted Substance List (RSL) tests and another 2-3 days if physical tests are to be done. Even though the cost depends on the nature of the test … RSL testing is expensive,” said Amit Kumar, deputy manager of Leather and Footwear divisions at certification services firm Bureau Veritas.
(The reporter is a student of EXIMS)