Agra shoemakers' rising rupee woes

There was a time when the footwear exporters of Agra used to rue the fact that their export market was predominantly Europe where they could tot up only modest gains.

On the other hand, exporters sending their wares primarily to the US used to make a killing because the rupee was down against the dollar.

For the exporters whose main market is Europe, the current rupee rally against the dollar is therefore not a life-threatening event. Approximately 65 per cent of their exports are still Europe-bound.

Therefore only that component of their business that is in dollars - around 35 per cent - has been hit by the appreciating rupee. But the Agra exporters are not necessarily sanguine about this.

There are between 250 and 350 footwear exporting houses in the city of which 150 use a semi-mechanised process for manufacturing. Over the past two years, most of the factories have been running at 100 per cent capacity. Exporters are now wondering if this can be sustained.

"We had to refuse 30 per cent of the orders we received this year. Because of rupee appreciation, we have had to factor in at least a 10 per cent to 12 per cent price increase," said Amit Kumar, deputy general manager, Superhouse - a footwear export unit.

Kumar has several problems on his hands. Not only is his unit too efficient, but one of his most important clients is Carrefour - a European company that invoices in dollars. "It is a multinational company and sources from countries like China as well. Hence they do their invoicing in dollars. The weakening dollar has wiped out margins in that segment," he says.

"In the current circumstances, the industry is doing well in terms of volumes. But bottom lines have taken a hit, which is between 8 per cent and 10 per cent," says SP Raturi, general manager, Superhouse.

Spiralling input costs are adding to the woes of footwear manufacturers. Over one year, while cow hide has become 5-7 per cent costlier, buffalo leather is 10 per cent more expensive and synthetic sole material is up 5 per cent.

Small exporters like Anil Agarwal of Transworld Shoes Corporation have discovered a way out of the problem arising from rupee appreciation.

"We will exit the dollar business. It is only five per cent of my total business. We cannot go on incurring losses," explained Agarwal Kulbir Singh of Roger Exports, one of the key footwear exporter in Agra. The company has already refused orders worth $ 0.5 million in the first four months of FY 2007-08, but concedes this is not a long-term solution.

"The Chinese, who are our major competitors, will not be able to hold on to their price competitiveness. Till then, we must protect our stake in the market so that foreign clients are not lost," he says.

Agrawal feels that banning of leather exports could help the footwear industry.

"Currently, a lot of leather is being exported to China, which has led to an increase in input costs in India. Banning leather exports will make bring down input costs, giving us relief," he says.