Domestic producers of some 14 footwear components appear to be at the receiving end when competing with cheaper imports. Which is why they are blaming the government for allowing footwear exporters to import such products at zero Customs duty - up to 3% of FOB value of their exports.

Footwear components listed as duty-free products under the duty-free import scheme (DFIS), include poly-eutherine & thermo-plastic rubber soles, in-sole sheets, toe and counter sheets, linings, inter-linings and adhesives among others, which otherwise attract an import duty of 15%. The countervailing duty is also waived on imports.

Against this, domestic producers have to pay 16% excise duty and a 4% central sales tax (CST). Due to exemption from customs duty and local taxes, imported components are 35% cheaper than domestic products. Which is why, footwear component imports went up to Rs 200 crore in April-December 2006 against Rs 100 crore in 2002-03, nearly 40% of which is contributed by those high-value duty-free items. Imports mainly come from China and Thailand.

Flooded by cheap imports, capacity utilisation of these products at the indigenous level has plummeted below 30%, though around Rs 100 crore had been invested over the past five years for quality improvement, said Mani Almal, president, Indian Footwear Components Manufacturers’ Association (Ifcoma). Facing such an uneven competition, such component producers are switching over to other areas, he added.

If such a shift continues, there will soon be no quality producer of such products in the country. If import of these products are continued to be encouraged at the cost of domestic producers, it will hurt the national interest in the long run, argues Almal.

That an injustice has been meted out to domestic footwear component producers has even been admitted by the Union commerce and industry minister Kamal Nath, who has taken a sympathetic view in this regard, claims Almal.
Encouraged by this, Ifcoma has appealed to the finance ministry to treat those component sales to exporters as deemed exports and thus grant a waiver on local taxes in the 2007-08 fiscal. The proposal has been cleared by Council for Leather Exports.

To help footwear exporters source quality components and accessories at cheaper prices from overseas markets, the government has started liberalising imports of these products since 2002-03. It kicked off the liberalisation process in this segment by first allowing duty-free import of metal fittings up to 1% FOB value of footwear exports in the year. The sop was extended to six more components and accessories in 2003-04. In the year, the cap on the FOB value was raised to 3%. The number of listed items under the DPIS was further extended to 14 out of 32 components and accessories in 2005-06.