ABDUL JALEEL has
always been associated with the footwear business. The company that he
runs today was established 73 years ago by his grandfather in 1930 in
Delhi in the then undivided India. Two years later in 1932 the
multinational footwear manufacturer Bata, which had just started its
operations in the country, appointed Rashid Shoe Company as its
distributor in Delhi. After the partition, the family migrated to
Karachi and re-started Bata's distribution 'from a scratch', as written
by Mr. Bata in his memoirs mentions Abdul Jaleel proudly. Being a
third-generation footwear distributor of the best renowned multinational
himself, Abdul Jaleel is now joined by his son Abdul Latif to induct the
latest trends in marketing necessary to meet the fourth-generation
market. Besides the wholesale business Abdul Jaleel has also opened a
retail outlet and plans to open another 4-5 in near future. He aims to
sell 2 million pairs of footwear a year.
What's the share of the formal sector in the overall footwear market of
The combined share of Bata and Service, the two companies in the
organized sector, is only about 16 percent, two-third of which is
enjoyed by the former. The remaining 85 per cent of the market is
dominated by the footwear from the informal sector which pays no taxes
thereby depriving the footwear manufacturers in the formal sector of a
level playing field despite paying all taxes the overall impact of which
adds up to be about one-third of the retail price. In a price driven
market where the cheaper imports from China are on incessant increase it
is becoming hard for the two formal foot wear manufacturers to compete
not only with local counterparts by also imports.
What's been the impact like?
Let me illustrate the toll that the no-tax paying informal sector and
the imports have taken on the all-taxes paying formal sector. Prior to
the levy of the general sales tax in 1996, I was selling some 2 million
pairs of footwear a year which has shrink to just 1.2 million pairs
today. The formal footwear sector, of which I am a part, has been unable
to compete with the informal sector because it pays no taxes and the
situation has only become worse with the flooding of market with the
Chinese products which after paying all the duties and taxes have been
able to make big niche because of competitive prices.
So you feel that the GST is the single biggest reason for the
substantial loss of share of the market by the formal sector?
Yes it is one of the primary factor because the manufacturers in the
informal sector, who enjoy the bulk of the market share, have no qualms
to avoid paying taxes thereby enabling them to retail their products at
prices which the two manufacturers in the formal just cannot afford. The
formal sector, by its very nature, has to pay numerous direct and
indirect taxes and that explains that while it enjoys just about 16 per
cent share of the total footwear market it contributes unproportionate
high taxes. In addition, the 15 and 18 per cent GST as the case may be
depending on whether a retailer is registered or unregistered, is way
too high when compared to another countries where the Value Added Tax is
charged at an affordable rate of 5-6 per cent.
What kind of impact the Chinese imports has on the market?
Footwear imported from China has been able to wrestle away 15-20 per
cent share of the local footwear market already. On an average they
retail for 60 less than the locally made shoe despite being imported
into the country legally after paying 25 per cent duty, 15 per cent
sales tax and 6 per cent income tax. Bata itself is the biggest importer
of shoe from China.
What you think are the primary factors for the inability of the local
footwear industry to compete with imported footwear flooding the market
It can be attributed to numerous factors — low productivity, absence
of standardization, lack of craftsmanship, high production costs and the
last but not least the high prices of basic raw material — the
leather. As you know the finest hides and leather produced in the
country are exported because it offers the relevant class of exporters
to make good and easy money without being bothered about value addition.
The average price of good quality leather has increased from Rs 1.50
square foot to unaffordable Rs 70-80 square foot at present. The average
price of good quality leather has registered a sharp increase from Rs
30-35 square foot to Rs 70-80 square foot in last 5 years alone. In a
price-driven market such as ours, the growing cost of inputs and the
price basic raw material on the one hand and the imposition of high
taxes on the other, which hurts the formal sector particularly, has
pushed the production costs to a level whereby the footwear
manufacturers in the formal sector just could not compete with either
the local counterparts in the informal sector or with the Chinese
Do you think the local footwear industry would be able to retain its
hold on the market in the years to come?
As mentioned earlier Chinese footwear has already been able to capture a
good 15-20 per cent of the market. If the things remain the same and the
formal sector, which contributes the lion's share of taxes, is not
accorded the level playing field both against the local counterparts and
exports, I fear that it would ultimately result in the closure of
operations by the formal sector. Thus far the wholesalers like me has
not diverted their attention to market Chinese products. If the
declining business does force them to try out that venue it would be a
great setback for the national footwear industry because it would mean
that the imports would be much better organized to main deeper
penetration of the market a reality by imports.