Finding themselves entrapped between liquidity crunch and rising production costs, the leather industrialists of the city are crying hoarse over 'inflated' fuel prices.

The industry has been hit severely by the slowdown in the west, which is its primary export market.

"We are finding it difficult to upgrade our technologies and undertake business expansion due to hardening interest rates. While the governments in the US and Japan are lending at zero rates, we have prohibitive interest rates," said DC Pandey, general manager, finance, Mirza International [Get Quote].

It's not only majors like Mirza who have been hit by the credit crunch.

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The worst sufferers are over 150 small units scattered over the city. More than 60 per cent of them have closed production and retrenched over 2,000 workers, according to an estimate.

"For the past four-six months, the traders have begun delaying payments on their IOUs.

About 14-15 traders declared themselves bankrupt, creating an unprecedented cash crisis in the market," says Taj Alam, a leading saddlery exporter from the city.

To make matters worse, China is offering stiff competition to Indian leather manufacturers amid low demand in the international market.

The export exemption duty given by the Chinese government is around 14 per cent, while the Indian government offers an exemption of only 8 per cent.

"Apart from the duty, the Chinese government has given a host of incentives like ensuring a stable exchange rate against the dollar to shield exporters from oscillating exchange rates," said Alam.

It may be noticed that around Rs 500 crore (Rs 5 billion) worth of orders have been stranded due to frequent changes in the exchange rate of the rupee against the dollar.

China is India's major competitor in the sector as it has the capability to produce large volumes at low prices. Chinese leather industry tops in raw material resources, product yield and trade.

"While the Indian leather industry produces quality leather and is confident of beating China, it is unable to expand capacities due to lack of skilled labour and predominance of small and medium companies," said Mukhtar-Ul-Amin, chairman, Council of Leather Exports.

"International fuel prices have declined to around one-third in last six months, while the government has not offered any significant cut in fuel prices," laments Pandey.

The inflated prices are adding to production costs, say exporters.

The UP Pollution Control Board has also issued stringent guidelines against discharging tannery waste without proper treatment, leading to closure of more than 40 small tanneries in the Jajmau area of the city.

"The administration does not take care of central effluent treatment plants and we are forced to close down production due to lack of adequate treatment capacity in these plants," complains Maqsood Alam, owner of Model Tannery.

The Council for Leather Exports' regional director Indira Mishra agrees that if timely relief is not provided, the city's leather industry may head towards a disaster.

The leather industry currently employs about 2.5 million people and is one of the country's top 10 foreign exchange earners. India's share in the $88-billion world leather trade is about 3 per cent.

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