The leather industry is thankful to the Hon'ble Union Minister Finance for announcing certain major schemes for the benefit of the leather industry in the Union Budget 2012-13.
- Setting up of dormitories for women workers in the 5-mega clusters relating to handloom power looms and leather sectors.
- The exemption limit of Central Excise duty available to non-leather footwear is being increased from MRP Rs 250 to Rs 500.For non-leather footwear exceeding Rs 500, the applicable duty is increased from existing 10% to 12%.
- The rate of service tax is being increased from 10% to 12%.
- The basic excise duty enhanced from 10% to 12%.
- Exemption of Service tax has been extended with retrospective effect from 16.6.2005 to the Common Effluent Treatment Plants (CETPs) set up with the assistance of Central or State Government in the leather industry.
Enhancing the limit of excise duty exemption for non-leather footwear to Rs 500 per pair might highly benefit the manufacturers; particularly the manufacturers who are selling footwear in the domestic markets. Apart from this, the hike of basic excise duty and service tax from existing 10% to 12% will impact the sector.
Besides, the extension of the Service Tax exemption to the (CETPs) is likely to help the leather industry effectively in implementing environment management programmes.
The dormitories provided for women workers in five mega clusters will be great help in creating a comfortable and secure boarding facility near the workplace for women, particularly for those women whose residence is located beyond from work place. This scheme would also attract more women workforce for the leather industry.
Leather and leather product sector derives sizeable portion of revenues from exports. We can expect upward revision in duty draw back due to hike in excise and service tax. This revision generally happens in June and this time, we can expect the same in June 2012. Accordingly, the global competitiveness of Indian leather and leather product exports can improve marginally, or the players can improve their margins by retaining part of the benefits.
Stocks to watch:
Bata India, Liberty Shoes, Relaxo Footwear
Central Excise duty exemption for non-leather footwear of Rs 500 per pair is likely to benefit the leather sector. The increase in excise duty and service tax might lead to increase in the prices of leather products on the back of passing the prices to the end users. On overall, the Union Budget 2012-13 was quite satisfactory for the leather industry as their major recommendations were accomplished.