What is your view on the new GST structure for footwear because most on the Street seem to be lauding rates but in case of your industry, the feeling seems to be a little otherwise considering how unorganised the industry is?
The fundamental is that GST is going to be a game changer for the entire footwear industry as well as for the industry at large. I believe the footwear industry has been recognised by the Government of India as a focus sector in the Make in India whether we do it for India or we do it for the world. And we had a target of achieving $27 billion from the base of $15 billion where there is a 20% growth targets which has been set by the government for the next five years.
One must understand that this sector is highly unorganised where 80% to 85% of the industry falls under very small micros, small and medium enterprises and hardly you can name brands which are there in the footwear space which are in the let us listed space. So there is hardly 5-6% of the space which is catering by the large scale industry.
So this is where the GST can have a better play for the industry and the whole idea of GST was to integrate the sector as one sector. When we talk about GST one nation one tax, I would also believe that it is one sector. But when you have unorganised sector and organised sector which are competing with each other, we are competing internally rather than externally. And while the government has withdrawn all the exemptions various tax slabs structure which were there in the past as legacy, but going forward the government has decided two rates of tax which is 5% for shoes marked with 500 and below and above 500 there is a huge-huge-huge 18% tax and that is again creating a divide between micro, small and other unorganised players to organised player.
And this is where industry is really shouting and crying about it that the whole idea was to grow the industry in India where the manufacturing sector needs a push from the government on Make in India and we can create two to three million new jobs at the grass root level. Unfortunately, the tax rates there is a huge divide between 5% and 18%. So there is a lure for 13% differential for unorganised sector not to pay the tax and this is where probably the industry is scared and there are lot of demonstrations happening and we are really concerned about the high rate of tax for shoes above 500.
So, what is the current market size of the footwear industry and how will things change in terms of that market getting organised and you increasing your market share within that unorganised segment?
I was talking earlier on behalf of the chairman of council for footwear leather and accessories which has been formed under DIPP. The size of the footwear industry is 30,000 crore to 40,000 crore. And this industry can grow to 80,000 crore in next five years provided the right policy environment and the taxation structure is in place where because India is a second largest producer of footwear in the world and this is second largest being… we would like to cater to the rising demand in India and also for the rising demand in the global footwear space.
But unfortunately the industry is not competitive enough within India because of the tax structure. So I believe that the GST surely is going to change the whole spectrum of getting organised. So lot of companies who are in the unorganised sector will ultimately they have no choice but to come into the organised sector. But since the differential of taxes is so high, so this is where the industry is little scared and little bit sceptical as to how fast the industry can integrate. At Liberty, again we have the same situation when you talk about Liberty we have shoes which is 500 and below and our market share for that particular segment is hardly 10% to 12%. So majority of the segment is between 500 and above.
This is where 18% GST slab is there and we have already calculated because you have plants and your products and each and every plant and product is profit centre so you cannot generalise on balance sheet basis as to what are the gains in GST. We have to look at the products which were earlier taxed at lower rate and now they are taxed at very high rate. So we have the potential to increase in the leather footwear space as well as in the other categories and this is we see that the burden of the increase in tax will be pass on to the consumer by price increase because at the end of the day we need bottom line and we have to sustain our bottom line and it is important for us to…
You are saying that a large chunk of your product portfolio is higher than the Rs 500 per unit price?
Exactly, that is right.
So tell us now how pricing would actually change for both products which are higher than 500 and lesser than 500 per unit.
First of all the present task is first of all to get ready for GST which we are fully prepared as a company at the same time there are huge stocks lying in the supply chain and at the retail level so we believe in there is a current sales going on across the whole industry whether it is footwear industry or any other retail space. So we believe that the lot of demand shift will be there in the month of June where we see a drop in the sales in July and August. We expect that because we have already done majority of the sales in the current period.
So as a result there would be correction in the top lines or in the sales in the next two months but I am sure when the peak season is coming from October onwards which is the peak season for the entire industry in India, there we see probably there will be a huge growth because at the end of the day the organised sector will largely benefit from the implementation of GST because the customer is very clear, the customer will be very-very sure that if he is getting the products which is tax is very-very clear to him because earlier that was not the case. So I believe that there would be a 5% to 7% price increase which Liberty will increase effective September because we have to pass on the additional tax burden to the consumer.