Nos. 72 & 73, May 2018

Nos. 72 & 73 (May 2018)
India's Working Class and its Prospects


India's Working Class and its Prospects

Kanpur Leather Cluster Revisited after a Decade

-- Manali Chakrabarti, Rahul Varman

Over ten years back we had closely studied the Kanpur Leather Cluster (KLC). Kanpur, with 2 per cent of the state’s population, accounts for 6 per cent of the urban workforce, second only to Noida. The significance of this can be understood when one realises that Uttar Pradesh (U.P.) has 16 per cent of India’s working youth (15-34 years). It also has 20 per cent of India’s child population (5-14 years), who will join the job market over the next decade.1 Finally, it has one of the highest unemployment rates in the country – 148 out of every 1000 youth in the age group of 18-29 years are unemployed in the state.2

Kanpur, which was the fourth largest industrial centre in the colonial period, saw a rapid decline of its original industries after 1947. But the Kanpur leather cluster, which is primarily into exports, survived and thrived over all these years. KLC successfully faced shifting markets, uncertain demands, and several downturns in the global economy. With almost no support from the government and having to make do with abysmal infrastructural facilities – the cluster not only held on to its share in the leather market but also shifted up in the global value chain by producing footwear and other leather products. During our study we realised the significance of this cluster not only as a revenue earner (Kanpur contributes around Rs 19000 crores3 to the state’s GDP and a significant portion would be from leather cluster) but also as a major job provider. We had identified several strengths of the clusters which needed to be buttressed and deepened to ensure continued good performance of the cluster. We had also noted some crucial weaknesses of the cluster which if not addressed could prove to be fatal for the entire cluster.4

Prime Minister Narendra Modi started his term by stating that his government’s highest priority was to boost the manufacturing sector, ‘to transform India into a global design and manufacturing hub’.5 He launched the famous ‘Make in India’ initiative on 25th September, 2014 with a tweet: “Make in India…this is the step of a Lion.” He then goes on to say:

If each one of our millions of youngsters resolves to manufacture at least one such item, India can become a net exporter of goods. I, therefore, urge upon the youth, in particular our small entrepreneurs that they would never compromise, at least on two counts. First, zero defect and, second again zero effect. We should manufacture goods in such a way that they carry zero defect, that our exported goods are never returned to us. We should manufacture goods with zero effect that they should not have a negative impact on the environment.6

Leather is one of the priority sectors of  ‘Make in India’. September 2017 marked the completion of three years of this initiative, and we decided to see how the Kanpur Leather Cluster fared in these years.

Kanpur Leather Cluster: A brief overview
The Kanpur Leather Cluster involves a wide range of operations – from picking up fallen animals (often from rural areas), to flaying, tanning and finally producing the finished leather and various kinds of leather products, ranging from footwear to harness and saddlery and many others. There are no exact data, but KLC employs around 2 lakh people directly, and several times more are dependent on this cluster. Much of the final output of the cluster heads for the export market. Earlier the Soviet bloc used to be the destination of bulk of the produce, but in the last 25 years exports are primarily to the European Union, and some to China.

We identified three main strengths of the cluster which contributed to its sustainability over such a long period and changing market conditions.

Flexibility and adaptability: KLC, like all small industry clusters, functions through a decentralised production process with an organisational form which is fundamentally different from the rigid hierarchical form of conventional large organisations. The individual operators and the small and tiny units are linked in a complex network of relations both vertically (among the buyers and suppliers) as well as horizontally (among potential and actual competitors). Products are manufactured in a concentrated geographical location, but go through several disaggregated steps. Each of these steps in the production process has its own specialised units and is done independently, yet in congruence with the rest of the process. Such an arrangement provides extreme flexibility in the production processes, the key to their successful adaption to changing market demands, products and technologies.

Trust and cooperation: The units in the cluster compete for the same market and buyers, but given their interdependence, there exist trust-based ties among the various actors. Thus they share common facilities, know-how and skilled artisans to ensure the effectiveness of the cluster as a whole. They also collectively institutionalise norms and practices for their operations, which is imperative to deal with opportunistic behaviour by individual actors, and ensure smooth functioning across the cluster.

But arguably the most important strength of the cluster is having access to a constant pool of highly skilled workers: It is the high skill base which is the basis of all the advantages and flexibility producers display in moving to new markets, designs, products and even processes. It cannot be overemphasised that leather is a natural product, and given the chaotic process through which almost every hide/skin has to go through in India, every piece of leather is different, and hence each and every step in the production process requires considerable knowledge and skills. Moreover, development of different kinds of workers takes place without almost any element of formal training and investment either by Government-sponsored institutions or the factory owners themselves. Most of the workers get trained through informal apprentice systems within the family and community. Almost all the manual and hide related work is undertaken by either Muslims or dalits.

Our study of the cluster made us realise that the there is no formal acknowledgement by the policy-makers of these unique advantages of the cluster, and hence they have not provided any support for these organically developed features. There are no sustained policies to provide technical training to workers, supply infrastructural support to the small units to maintain global standards of production, bear some of the responsibilities of ensuring clean and green production processes, and ensure fair labour practices. In fact most of their interventions are at best irrelevant and often harmful.

We also came to understand that the existence of the cluster itself could be jeopardised by two crucial weaknesses in the specific context of the cluster.

1. Cheapness of products: KLC operates at the lowest end of the Global Value Chain – i.e. its unique advantage is that it is able to supply leather and leather products at the cheapest price possible.  Given this, they operate at very small margins and compete with several other third world countries for the market, which is primarily concentrated in the West. This makes them very vulnerable and also leads to the following tendencies:

No bargaining power with the buyers – there is constant pressure to reduce prices even though the input costs have been going up steadily.
Extreme exploitation of workers – the workers are made to work at subsistence wages under inhuman working conditions to maintain the thin margins.
Serious environmental pollution: One of the main reasons for sourcing leather from Third World countries by the rich nations is to pass on the environmental costs to the poorer nations, as leather tanning is extremely polluting. Significantly, neither are the buyers ready to bear the increase in cost should the appropriate effluent management system be put in place, nor is there any support by the local government to ensure adherence to norms. So the tanners are left to illegally pass on the costs of pollution to the local inhabitants.

2. Lack of domestic demand: The extreme vulnerabilities of the cluster, resulting from operating on thin margins with no unique product range, is further exacerbated by serious lack of effective domestic demand, especially for mass consumption goods such as footwear and other leather products. Domestic demand could have provided the essential buffer to pull through the vagaries of international market, and a country with such a large population could have supported a vibrant industry. But the extremely limited buying power in the economy, resulting from the very advantage of cheap labour power, in fact does not allow for an effective domestic demand.

And finally, if these concerns are not addressed effectively, it might endanger the very existence of the cluster. The small and tiny units would not be able to cope with the uncertainties of the global market and the various other local and national constraints, and consequently their elaborate network, built and sustained over centuries, would be threatened. This would be manifested in the following tendencies:

Demise of small and tiny units and the emergence and dominance of large enterprises: In the above scenario there would be a shift towards mechanisation and conventional large organisations that are not dependent on such networks..
Deskilling of workers: The consistent cheapening of labour and large scale mechanisation would lead to constant migration of skilled workers, who would have to be replaced by unskilled workers from the hinterlands. But with the  absence of adequate skilled workforce the cycle of training of workers through apprenticeship-like arrangements would not be possible, which would prompt further mechanisation, leading to a downward spiral of skills.

Kanpur Leather Cluster in 2017
Against this backdrop, let us see how the Kanpur Leather Cluster fared in the recent years.

Source: Council for Leather Exports, Kanpur7

As is evident from Table 1, prima facie the Kanpur Leather Cluster seems not only to have been able to ride out the massive downturn in the global economy of 2008, but has in fact prospered over the years. Total exports have gone up two and a half times in six years. There has been a consistent increase in the value of exports in all categories of products – finished leather, footwear, harness and saddlery and other products -- in these years. With a growth rate three times the national average, Kanpur alone accounts for 40 per cent of the total leather exports in the country. In fact Kanpur has emerged as the top exporter, surging ahead of Chennai and other southern cities, whose share in leather and goods exports shrank from 65 per cent to 38 per cent over these years.8 Only in 2015-16  has there been a sharp dip in exports, especially in finished leather.

Thus the cluster seems to have thrived in the intervening years since we last visited it. Let us delve deeper to understand how much the constituent stakeholders have been part of this growth. The following is based on a few personal interviews and secondary data, but it indicates the need for going beyond what is visible.

To begin with, let us look at some crucial developments in the local and national contexts which have seriously affected the cluster and its various stake holders:

Gaurakshaks: Skinning and flaying of fallen animals in and around Kanpur traditionally have been done by Muslims and dalits. But since the present government came to power over three years ago, there has been a nationwide rise of the cow vigilante groups.The impunity with which these self-styled groups have been operating has caused widespread fear and uncertainty, and many have been forced to leave their traditional occupation and businesses.

Tannery owner Mohammad Ikram said he was only able to procure 4,000 hides a month - down from 25,000 - because even truckers transporting legally obtained cow or buffalo hides fear attacks from vigilantes.9

Closure of abattoirs: The situation has been further exacerbated with the ban on unlicensed slaughterhouses in March 2017, one of the first moves by the newly elected Chief Minister Yogi Adityanath of the state. The problem is that since most of the meat and leather trade is in the informal sector it is very difficult to get licenses, which means closure of most of the abattoirs.10 The ban has hit lakhs of small and tiny slaughterhouses and butchershops.

Beef ban: And then in May 2017 the Central government banned trade in cattle for slaughter, and restricted livestock sales to agricultural purposes such as ploughing and dairy production, supposedly to prevent cruelty to animals. Though the Supreme Court has overturned the ban, on the ground the ban is in effect. On June 6 2017, Uttar Pradesh government issued a new directive to punish cow slaughter and illegal transport of dairy animals under the National Security Act and Gangsters Act, effectively criminalising traders.11

Environmental concerns: A concerted crackdown on tanneries by the National Green Tribunal has further jeopardised the industry. Taking a tough stance, the NGT has already shut down 98 units, and has threatened to shut down all the 700 tanneries along the Ganges if they do not adhere to specified norms.12 Industry insiders, however, claim that this tough stance is merely passing on the complete responsibility to small and vulnerable businesses, while the State’s failure in not upgrading the requisite infrastructural support has been completely ignored. Naiyar Jamal, of Kanpur Tanneries Association states,

UP Jal Nigam takes money from each one of us for the operation and maintenance of the treatment plant, yet there has been no upgradation of it for more than two decades. The old plant had the capacity to treat 175 tanneries in 1996, after which more than 200 more tanneries have come up. No work on capacity building has been done and in the meantime the old plant has started overflowing.13

Demonetisation: An already reeling industry was further crippled by demonetisation of currency in November 2016. An industry which largely operates in cash given its fluid and complex transactions was practically paralysed, and as has been reported widely, the lowest and the most vulnerable were hit the hardest.  The following are some remarks by the people associated with various operations within the cluster:14

A hide which used to fetch Rs 500 four years back gets only Rs 200 to 250 now. Since demonetisation, we only get half the payment. – Radhey Shyam, skinner, Banthara, Unnao (part of KLC).

Earlier it used to fetch Rs 1,000 to Rs 800. Now it goes for Rs 300 or 400. Demonetisation has delayed payments from buyers. – Yakub Ali Qureshi, a butcher.

Seventy per cent of the migrant labour force, mainly from Bihar and eastern Uttar Pradesh, has left... Most of our labour is migrant so we cannot even open their accounts here. – Shameeq Ahmed, whose tannery has a capacity to treat 130 hides a day.

Tanneries in Jajmau (part of KLC) alone require about 12,000 hides per day, which is close to four lakh a month. The largest supplies come from slaughter-houses, which have started closing down. Today, most tanneries are running at just 30 percent of their capacity, with stocks they had bought about a month back.
-- Qazi Naiyer Jamal, the general secretary of the Small Tanners’ Association, who runs his own tannery in Jajmau.

I have returned 20 percent advance payment from companies in China, where New Year is at the end of January.
-- Jamshed Soleja, owner of a slaughter-house-cum-processing unit, who has closed his unit and laid off 1200 employees due to lack of cash to buy animals from farmers in local markets.

Large scale closure of small and tiny units
As is apparent from the above, despite its good performance in the recent past, the Kanpur Leather Cluster seems now to be in deep trouble, and several players in the entire cycle of the cluster, from skinners and flayers, to abattoirs, to tanners and small leather footwear and goods manufacturers, have been severely affected. Most of the individual skinners and flayers have moved to other occupations because of the stigma attached and also the fear of cow vigilantism, and the impact has been the severest on the most vulnerable sections of the society – Dalits and Muslims.

The Qureshi community, who used to skin animals by hand, have almost entirely lost their livelihood. Dalits too, who skin animals when they die naturally. Even the number of labourers in this area has gone down to about 10 per cent of what it used to be.15

Hide transporters have been the prime target of cow vigilantism and they have no protection from the State either, in spite of adhering to all legal requirements, as is evident from the quote below by a hide transporter:16

A lot of the time it is okay, we don’t have any trouble. But every now and then, we will get heckled by a mob; they will want to empty our truck to check for cow skins. They threaten us, push us around, and the police doesn’t help with this. We have heard of people being badly beaten in these situations in other parts of Uttar Pradesh. Our families are scared, but what do we do? This is our livelihood.

Similarly, small traders and smaller slaughterhouses have run out of business, both because of lack of supply of hides and skins, and also because of being forced to close down for not having the requisite licenses. Things had been becoming difficult for the small players earlier too because of the competition from large mechanised slaughterhouses. This is apparent from the following remark of Haji Afzal Ahmad, the head of the HMA (Hide Merchants ‘Association, Kanpur):

Even though they charge more, people are willing to pay the slightly extra price because animal hides skinned by a machine never have holes. If you do it by hand, like we do here, you sometimes get a few holes.17

The recent developments, however, have made the situation acute and led to unmet demand for the small tanneries. Apparently 20-25 large tanneries have shown interest in shifting to Kolkata because of the problems in getting raw material in Kanpur.18 Moreover, most of the smaller units have been forced to shut down indefinitely because of the crackdown by the National Green Tribunal, as mentioned earlier. The bigger players also get away by being able to manage officials, but above all the Government remains unaccountable in spite of neither upgrading the obsolete common treatment plant nor enforcing the law properly.19

Consequently the small and micro footwear manufacturers have also been adversely affected and many have shut shop. They had been struggling to survive earlier too, given the rise of input prices and uncertain demand, but the present scenario has made the situation very difficult.

Thus the entire network of thousands of units in the cluster, involved in disaggregated and yet complementary operations, has got severely compromised in the last few years. The growth in the Kanpur’s leather cluster did not translate into growth of the small and tiny units which were a significant part of the cluster; on the contrary many of them have not even been able to survive in spite of having been in business over generations.

Thus, as we had anticipated during our earlier visit, without any support from the State, the structural weaknesses of the cluster have undermined its inherent strength, resulting in a possible disintegration of the cluster network. And yet, as data shows the ‘cluster’ has prospered till 2015. So who gained from the growth in the cluster?

Growth of medium and large enterprises
The growth in the industry has been due to the consolidation of large businesses. They not only have been able to weather various policy changes, but have thrived through them, probably it would be more appropriate to say that they thrived because of them.  The brunt of all the policies by both the state government and the Centre, from demonetisation to closure of slaughterhouses, to the beef ban and the crackdown by the National Green Tribunal on tanneries, have been primarily faced by the small and tiny players. And their cumulative losses have accrued as gains to the medium and large enterprises. As a top official in one of the largest companies in the cluster, which manufactures finished leather from rawhides, as well as footwear and other leather products, asserted:

Things have actually become better and more streamlined as we do not have to source our hides from small traders and can directly buy from large abattoirs. There is less hassle and the quality is also assured – something which cannot happen with hides from fallen animals. Further, we are a big player and have been adhering to the effluent processing norms for tanning, so NGT’s directives do not affect us. Our only problem is workers. There is a serious dearth of skilled workers, and while the Government wishes us to pay minimum wages it does not provide us with adequate skilled workers. This is the main constraint in  our business.

The same official hastens to add that the large units in Kanpur are nowhere in comparison to the large scale production in China and they continue to be niche players at best, that too at the lowest rung of the global value chain. It needs to be noted that the princely pay for workers the official is lamenting is all of Rs 7000 a month!

This brings us to the issue of employment in the cluster – how has that been affected? In this regard too unfortunately our anticipation seems to have come true.

Massive unemployment and deskilling of workers
Most of the employment had been in the small and tiny units of the cluster and the downturn in their fortune has led to large scale unemployment in the city:

Nayyar Jamal, general secretary of Kanpur’s Small Tanners’ Association, reckons as many as 400,000 employees in Kanpur’s leather and related industries are temporarily jobless, including some laid off because of environmental curbs on tannery pollution.20

Apart from anecdotal evidence and guesstimates, even macro data indicate the enormity of the distress in Kanpur’s leather industry. According to the latest Census data, UP’s population grew 20 per cent over the decade ending 2011, and most large and growing urban centres in the state, such as Lucknow, Agra and Meerut witnessed a similar growth in their population. One notable exception is Noida, which grew over 40 per cent, indicating rapid urbanisation and development and of course proximity to the national capital. But after seven decades of around 20 per cent decadal increase in population, Kanpur’s decadal growth rate has fallen to merely 9 per cent, a clear indication of large-scale migration from the city.

Kanpur has for long been the sink of migrant population not only from the hinterlands of Uttar Pradesh but even from states like Bihar, Jharkhand and Chhattisgarh. Given that the employment opportunities have not improved anywhere in the vicinity, a significant decline in the rate of growth of population indicates the scale of distress in the industries in Kanpur, including the leather cluster. This large scale migration of workers, including skilled workers, must have also compromised the apprenticeship tradition of passing on skill to new workers in the cluster. And with the absence of any meaningful intervention by either the Government or the private enterprises for skill development, the cluster is facing acute shortage of skilled manpower. This is corroborated by the footwear and leather manufacturers we spoke to in the cluster including the one quoted above.

Precarious exports market based on cheap products
And yet the fortunes of the large are not as secure as it would seem by their performance. In spite of the spurt in exports, KLC’s produce is still primarily of the lowest end products and they operate on wafer thin margins. This exposes the cluster to three crucial problems –
-- extreme competition from other low income countries that are constantly cutting their margins to poach customers
-- general slowdown in business due to downturn in global economy
-- cheaper substitutes for leather.

 Having no niche product to offer, the manufacturers in KLC have to either offer more competitive prices or opt out of the deal. The emergence of Bangladesh and Vietnam as cheaper go-to destinations has also impacted the industry.21 India is facing intensifying export competition from Vietnam, the third-largest footwear maker and the second largest exporter of footwear in the world.22 One of the 12 countries to have signed the Trans-Pacific Partnership trade agreement last year, Hanoi already has trade agreements with the U.S. and the European Union. But the TPP will open more opportunities as its signatories include Japan, Australia, Canada, Mexico and other major markets, and also enable it to upgrade machinery and equipment. Apparently several industries have already relocated from Taiwan and China into Vietnam.23

The devaluation of the currencies of Brazil and China has also contributed to the decline in exports from the Kanpur cluster. Apparently the Brazilian real depreciated 40 per cent against the dollar in 2014-15, and Chinese yuan by 3 per cent, making them more competitive.24

And then there are global fluctuations in demand for various reasons ranging from general economic slowdown, to milder winters in Europe,25 to the decline of imports by Russia due to subdued oil prices and the Russian intervention in Ukraine and Syria.26 According to Mukhtarul Amin, the managing director of Super Shoes (one of the biggest players in the cluster), shoe sales had fallen in Europe due to a secular drop in consumption: "The per capita consumption of shoes has gone down from three pairs to two over the last two years.”27

Competition from cheaper substitutes is another important threat to cheap leather and leather products. Poly vinyl chloride, or what is popularly known as PVC, is one of the main reasons for the decline of demand for leather. China is the main source of global supply of imitation leather fabrics - generically known as rexine, a synthetic leather fabric originally produced in the U.K. Leather suppliers in the domestic marker too have been importing and stocking a huge inventory of faux leather of more than 500 varieties from China. And price seems to be the main driver for the rise in demand of synthetic leather. As a leading manufacturer of PVC puts it:

A leather sofa may cost one anything [around] 500,000 rupees ($7,512). With synthetic fabric, one can get the same sofa for 50,000 rupees, and change the upholstery whenever one is bored.28

And of course uncertainties arising out of local conditions further accentuate the problem. For example the recently implemented Goods and Services Tax has already wreaked further havoc in the industry. Given its complicated slab structures and with multiple inputs, even the large units are finding it difficult to negotiate with it, let alone the small and micro units. As one small unit’s owner told us, “We need to employ a whole time chartered accountant to be able to file 37 returns annually. We might as well shut shop.”
In fact even the sales tax officials, advocates and the chartered accountants do not seem to have any clue as to how GST has to be applied. As one owner of a mid-sized footwear manufacturing firm rued:

Our advocates have become useless, our own accountant has no clue, the Chartered Accountant firm we go to for specialised services, do claim to know how it works, but I have my doubts. For example, I am in 100 per cent exports, and earlier used to claim 10 per cent from DDB (Duty Draw Back scheme), and though the Government claims to promote exports they have slashed it from 10 per cent to 4 per cent. Now with this GST we are not sure whether to claim refund from Government of GST, which would come to 12 per cent, even that I am not sure, but in instalments, and with every instalment there would be greasing involved, or stick to DDB which comes directly to my bank. And of course this extra tax burden makes our margin almost invisible.

Lack of adequate domestic demand
As we had surmised in our original study, the only antidote to these problems would have been the support of a substantial domestic demand, which could have helped the cluster tide through the uncertainties of global demand. But the impoverishment of the workforce in general, combined with the large scale demise of small and tiny units, have ensured that the domestic market for leather and leather products is still very small. For a country with one of the highest bovine populations and the highest goat population, there should have been no dearth of supply of raw material. In combination with the widespread availability of skilled workers and craftsmen, the supply of leather footwear and other products should never have been a constraint. And yet, in spite of having one of the largest populations, there is such a small market for a product of everyday use such as footwear and leather. It is a veritable tragedy that the Kanpur leather cluster, in spite of its existence for tens of decades, remains primarily dependent on the export market.

In our earlier study, we had emphasised that KLC has been able to leverage the abundant supply of critical raw material, the raw hides, and cheap labour due to the cluster-based production, wherein informal networks the skills are passed from one set of workers to others, and producers at various levels build cooperative ties. These give the cluster flexibility to deal with vagaries of the international markets. Visiting the cluster ten years later we realise that while, on the face of it, the cluster’s exports have significantly increased till at least two years ago, the foundations of the cluster seem to be on even weaker ground than what we had observed in the earlier study. Organic linkages with local demand are still missing, and hence it remains woefully dependent on the buyers in the West, a market that has become even more fickle and shifty after the 2008 crisis. Compounded with the fact that the two main strengths of the cluster, the supply of raw hides and the supply of highly skilled labour, are being undercut and squeezed, on the one side by the recent politics and policies of the Indian State (as we have shown briefly above) and on the other the logic of global value chain (as we had demonstrated at some length in the previous study). As we have sketched briefly above, this is leading to further marginalisation and immiserisation of the multitudes of small and tiny units, and there is every danger of disruption of supply of skilled labour, putting the longer-term sustainability of the KLC in peril, and with it the livelihood of lakhs in the future.



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4.The earlier study is available here: 47/leather.html (back)

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16. Ibid. (back)

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27. Ibid. (back)

28. Ibid. (back)



All material © copyright 2018 by Research Unit for Political Economy