BUSINESS ENVIRONMENT GROUP PROJECT PESTLE Analysis of the Footwear Indstry for the past few years.
Under the Guidance of
MR! SU"#EN"U BALI
Professor - Applied Science Department PEC University of Technoloy Technoloy !Pro"ect Supervisor#
S$%itted By
Sachin $our !%&%'(')'# Gaurav Dora !%&%'('%*# Sonam Dolma !%&%'('&)# Chiran"eev Sinh !%&%'('&(# Sunil +umar !%&%')''(# Tanu" Tanu" +umar !%&%')'&,#
PEC Uni&ersity o' Te()nolo*y+ C)andi*ar) ,"ee%ed Uni&ersity-
Indian Footwear Indstry.
ndian footwear industry holds a crucial place in the ndian economy for its potential for employment especially for wea/er sections and for supportin economy throuh its forein e0chane earnins. ndia is the second larest lo1al producer of footwear after China accountin for 23 of the lo1al annual production of && 1illion pair as compared to China4s share of more than *'3. ndia annually produces 5&.% 1illion pair of which 52'3 are consumed internally while remainin are e0ported primarily to European nations. Due to this ndia4s share in the lo1al e0port mar/et of 5US 6 %&' 1illion is a paltry %.23 in value terms ma/in it much lower than China4s share of 5)'3. ndia4s annual footwear consumption of 5&.% 1illion pair is the third larest lo1ally after China and USA and has recorded a healthy rowth over the past decade driven 1y rise in income levels hiher disposa1le income rowin fashion consciousness and increasin discretionary spendin. The same has also led to a chane in perception of the footwear industry from a 1asic need 1ased industry to a fashion and style industry. 7owever the averae per capita footwear consumption in ndia continues to 1e low at 5%.** pair per annum in comparison to the lo1al averae consumption of 58 pair per annum and developed countries averae of *-9 pair per annum. This ap coupled with increasin disposa1le income risin middle class and chanin consumer preferences provide a tremendous opportunity for the ndian footwear mar/et to row at a rapid pace oin forward. n value terms ndian footwear sector is estimated at 5:s. ,'''' crore which includes domestic mar/et of 5:s. 8&''' crore and e0port mar/et of 5:s. %(''' crore. Despite "ust %'3 share of e0ports in ndia4s total production volumes its share is almost one third in value terms due to hiher Averae Sellin Price !ASP# of 5:s. ('' per pair for e0ported footwear as compared to ASP of 5:s. %*' per pair for footwear consumed in the domestic mar/et. The sharp variation is on account of hiher share of leather footwear !5('3# in the total e0ports as compared to around &'3 share in the domestic consumption. China is the most dominant country in footwear e0ports havin a share of more than 9'3 in volume terms it alone sells almost three out of every four pair of footwear e0ported worldwide. 7owever since China4s e0ports are dominated 1y non leather footwear !more than 2'3 share of non leather footwear in total e0ports in volume terms# which commands lower ASP as compared to leather footwear its share in world e0ports in value terms is lower at a1out )'3. The ne0t most dominant country in e0ports is taly with a value share of 523 followed 1y ;ietnam 7on +on
and limited presence of orani=ed sement. The competitive intensity is hih 1etween the two sements and currently 1oth are estimated to have an e?ual share of the overall domestic mar/et in value terms. Thouh unorani=ed sement dominates the mar/et in sales volumes due to its presence ma"orly in the low cost ru11er@ plastic footwear. Unorani=ed sector ains its prominence in the ndian
conte0t due to its price-competitive products which are more suita1le and attractive to the price conscious ndian consumer. Their products are cheaper due to involvement of cheap household la1our la0 implementation of ta0 la1our laws and limited investment in assets. Burther with almost &@8rd of ndia4s population covered under the food security 1ill which aims to provide daily nutrition needs to an individual at su1sidi=ed prices such cateory of population presents a hue mar/et for the unorani=ed sector to cater to. evertheless with increasin 1rand consciousness amonst ndian consumers influ0 of lare num1er of lo1al 1rands and increasin penetration in Tier and cities 1y the orani=ed footwear companies oranised players4 mar/et share has made sinificant ains in the recent past and it continues to 1e on an uptrend. ndia e0ports larely leather footwear to its main tradin partners which include United +indom Germany USA taly and Brance. The ma"or dominance is of the European continent whose share is almost 9,3 in ndia4s total e0ports. This is in contrast to other ma"or e0porters li/e China ndonesia and ;ietnam which e0port non leather footwear mainly to USA. The footwear e0ports from ndia have rown at a CAG: of 5%)3 in dollar terms and 1y &'3 in ndian :upee !:# durin the five year period endin $arch &'%, 1ac/ed 1y rowin demand from European nations and increasin focus of main importin countries to shift sourcin from China to other low cost producin countries. the e0ports from ndia were further impacted on account of the appreciation of rupee aainst Euro durin B%, as compared to B%). The footwear e0ports from ndia which witnessed a healthy o rowth of 8*.&3 and 8*.'3 in the B%) and %7B%, respectively> ended the B%, with a much lower rowth of %9.*3 in ndian rupee terms. Fur interactions with the manaement of leadin footwear e0port companies suest that there has 1een an evident increase in e0ports to USA thouh the footwear demand from the European continent has wea/ened in the recent ?uarters which is a cause of concern. Burther the profita1ility of footwear players has also 1een affected in B%, due to adverse forein currency movements under a1sorption of fi0ed e0penses and increase in raw material prices which could not 1e entirely passed on to clients. The strenth of ndia in the leather footwear sector oriinates from its lare reserves of 1ovine population stron networ/ of tanneries s/illed and low cost manpower and a wellesta1lished presence in e0port mar/ets. 7owever ndia has 1een una1le to optimally utili=e its resources evident from the low recovery rate of the livestoc/ use of outdated technoloy 1y most tanneries and footwear manufacturers wea/ footwear components industry and limited presence of lare scale manufacturin units. These factors alon with steep transaction cost of doin 1usiness in ndia and hih inflationary trends since the past few years have reduced ndia4s cost competitive advantae aainst the other low cost footwear producin countries li/e China ;ietnam $yanmar ndonesia etc.
evertheless the footwear industry has witnessed healthy rowth in e0port earnins in the recent past and remains amonst the top ten forein e0chane earners for the country. n addition to this the industry has 1een providin lare employment opportunities especially for the wea/er sections of the ndian society. Direct and indirect employment in ndian footwear industry is estimated at around %.% million people. Ac/nowledin the importance of footwear industry the ndian overnment has ta/en various measures and initiatives in order to support its rowth which has led to structural chanes in the footwear industry. 7owever for the footwear sector to row rapidly oin forward and compete aressively with the other low cost producin nations stron push is re?uired in various aspects includin favoura1le policies which would help in rationalisin ta0 structure providin infrastructural support in capacity 1uildin reducin transaction costs and increasin the availa1ility of s/illed la1our in the country. Ma/or Mar0ets 'or Indian Footwear.
The European Union and the USA are the ma"or mar/ets for ndian Bootwear accountin for 92.2,3 and 2.&&3 share respectively in ndia4s total footwear e0port. The ma"or mar/ets for ndian Bootwear are Germany %*.**3 U+ %*.8%3 taly %,.8&3 USA 2.&&3 Brance 9.(%3 Spain ,.%'3 etherlands ).2%3 Portual &.,'3 UAE &.)(3 and Denmar/ %.%(3. These %' countries toether accounts for nearly (%.)23 of ndia4s total leather products e0port. The domestic footwear mar/et is driven 1y rowin fashion consciousness toether with increased disposa1le income amon ndia4s ur1an middle class which contri1utes a1out ), per cent of overall footwear mar/et ma/in ndia the second larest lo1al producer of footwear across varied sements after China.
Politi(al Analysis
The Government of ndia is supportin the leather industry in enhancin its competitiveness throuh upradation and moderni=ation 1y providin financial assistance.
• Department of ndustrial Policy and Promotion !DPP # provides a comprehensive scheme for moderni=ation and technoloy up radation in all the sements of the eather ndustry from tanneries footwear footwear components saddlery leather oods and arments. • This scheme is called Hnterated Development of eather SectorI !DS#. t was started in &''& and will 1e continued till &'%&. • Government had sanctioned :s &2' Crores for this pro"ect and will 1e implemented throuh two Proram mplementation Units !PU# namely C: and BDD. • 7ere financial assistance will 1e provided to the e0tent of 8'3 of the cost of plant and machinery for SS and &'3 of cost of plant machinery for other units !i.e. nonsmall scale units# su1"ect to a ceilin of :s. ,' la/h for 1oth cateories for technoloy up-radation@moderni=ation and@or e0pansion.
Also the industry has repeatedly 1een affected 1y issues such as wor/ersJ rihts and child la1or laws. Union wor/ers in clothin manufacturin plants may pic/et their employers especially if their waes or medical 1enefits are less favora1le than wor/ers in compara1le industries. Kor/ers pic/etin their clothin employers impacts production. This can cause delays for retailers in ettin sprin or fall fashions on time. Activists who are not employed 1y the companies may also pic/et retailers who purchase clothin from countries /nown for violatin child la1or laws. This neative pu1licity may impact a small clothin retailersJ sales and profits. Also a trade em1aro aainst another companyJs imports would force clothin wholesalers to find different suppliers.
E(ono%i( Analysis •
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T:EDS :isin disposa1le income especially amonst the lower- and middle-income classes is still allowin consumers to increase their footwear purchases mostly towards more added-value products. The economic scenario also started showin positive sins of recovery leadin to consumers increasin spend. CF$PETT;E ADSCAPE
A sample of footwear companies which includes %&% leadin companies in domestic and e0port mar/ets have witnessed CAG: rowth of %93 in operatin income durin five-year period endin $arch &'%). Profits@ cash accruals of these companies have remained healthy and e0panded almost four times durin this period with 1etter economies of scale improvement in product mi0 and rationali=ation of cost structure. n terms of product mi0 companies manufacturin leather footwear tend to have hiher profita1ility !1etween %'%(3# as compared to ru11er and plastic footwear manufacturin companies. Kithin ru11er and plastic footwear cateory as well companies into plastic footwear manufacturin have hiher operatin profita1ility !1etween ,-%&3# as compared to ru11er footwear manufacturin companies !1etween 8-(3#. The net profita1ility in the footwear sector is moderate due to hih interest and depreciation cost on account of continuous investments re?uired in capital assets and hih wor/in capital intensity which is larely funded throuh 1an/ de1t. Fwin to wea/ economic conditions in ndia since the past few years domestic footwear companies into hih value product sement have witnessed moderate sales rowth mainly due to pressure on their volumes. 7owever companies into 1randed low value footwear continue to report healthy sales rowth of more than &'3 with increasin shift in demand for 1randed footwear and increasin retail presence in Tier and cities. The overall rowth for our sample of listed domestic footwear companies has 1een a1out %&3 in B%, as compared to B%). n comparison our sample of listed e0port companies has reported a o rowth of 5%(3 in B%) and B%, with risin e0ports to USA and healthy demand from the European nations for the most of %7 B%, thouh the demand then wea/ened in the &7B%,. The profita1ility for most of the companies in our sample has 1een under pressure in the recent ?uarters due to su1dued sales rowth increasin raw material prices and adverse forein currency movements. The impact on profita1ility has 1een hiher for companies manufacturin hih value products for the domestic mar/et and e0port oriented companies while the profita1ility of companies manufacturin low cost footwear for the domestic mar/et continues to remain ro1ust. Bootwear sector is hihly wor/in capital intensive due to su1stantial investments re?uired in maintainin hih raw material as well as finished oods inventory and e0tendin sinificant credit to clients@ sellin partners especially in the case of footwear e0ports. Bor a sample of twelve companies wor/in capital intensity has averaed 5&)3 in the past which has 1een larely funded throuh short term@ wor/in capital 1orrowins from 1an/s enerally to the e0tent of 9,3 of the total re?uirements. The utili=ation of wor/in capital limits 1y e0porters has 1een historically hih at 52'3 for our sample companies as compared to 5,,3 for our sample of domestic companies. %
Fur sample of footwear companies have 1een consistently investin in P$ increasin capacity e0pandin retail presence and settin up new manufacturin facilities over the years. The fundin of such investments has happened ma"orly throuh lon term 1an/ de1t 1esides promoter4s contri1ution and internal accruals. Fwin to hih reliance on e0ternal de1t for fundin of capital e0penditure and wor/in capital re?uirements our sample of companies have reported elevated averae earin levels of 5%.& times in B%). evertheless 1ecause of their healthy profita1ility levels de1t coverae indicators includin De1t@ FP<TDA interest coverae ratio and CA@ Total De1t have 1een comforta1le at 5&.&8 times 5).&* times and &(3 respectively in B%). 7ereJs the data for
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Analysis o' So(ial En&iron%ent •
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Brom the past few years with the advent of technoloy and increase in averae income levels of the people there has 1een an upward shift in the lifestyle of the people. $uch of it could 1e attri1uted to availa1ility of products at lower prices too.
ladies4 and /ids4 sements which account for a1out 8' per cent and %, per cent respectively. The demoraphic structure of ndia is as followsL !male %(9'%*)'%@female %*,')(*2,# 1234 years. &(.,3 !male %%(*2*,)'@female %',8)&9*)# 35264 years. %(.%3 !male &,(&'&,8,@female &)8&28%)8# 65254 years. )'.*3 !male )8*&,**(@female )8%9,%%%# 55274 years. 93 75 years and o&er. ,.(3 !male 8)%88%9,@female 89(%',22# !SourceL CA Korld Bact1oo/# $eanin that the ma"or portions they can taret while considerin the desins and type of their footwear is that of /ids and adults who comprise of appro0imately (,3 of ndia4s population. $oreover appro0imately ,'3 of the population is in the wor/in class.
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Buying access and trends: - According to the World Footwear Congress, by 2030 the process o global urbani!ation will rise ro" #$%$& to '0&, contributing substantially to increased de"and or consu"er goods% (he role o )nternet, new online shopping channels and social "edia is, the great challenges o our ti"es i"posing the need or ootwear "anuacturers and sellers to de*ne new strategies% With the newly de+eloped ascination or e-co""erce in )ndia the ootwear industry is going to be bene*tted ro" it, i they succeed in identiying the trends o the consu"er buying patterns% Buyers are shiting towards -Co""erce websites or +alue deals% With the rise o technology, "ore and "ore buyers are shiting towards -Co""erce websites or purchasing% (here are "any reasons or this- *rst o all, it sa+es a lot o ti"e o consu"er% ou don.t ha+e to +isit the outlet or purchasing as you can now purchase ro" your ho"e or o/ce% econdly, it gi+es the" a lot o +ariety to choose ro"% 1ther policies lie 30 day replace"ent guarantee also adds to the bene*ts o using -Co""erce websites% All this has "ade the purchase o goods easier and the ob o the co"panies and big brands is to ensure that retailers and suppliers don.t gi+e away the products at such low prices that their brand i"age is sacri*ced%
Co"ing up o +arious 451.s and other social groups: - With the co"ing up o di6erent 451.s and social groups the i"portance o hu"an lie, woring conditions, wor ethics, and health o the
worers ha+e increased "any olds% 7any industries lie 4ie has been critici!ed or cri"es lie child labour% (his results in creation o bad i"age o the brand a"ong the consu"ers resulting in the all o "aret share o these brands%
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"ploy"ent 8e+els: - According to the recent report by 8abour 7inistry the une"ploy"ent rate increased to 9%& particularly because o the increase in une"ploy"ent in agricultural sector% (his is going to a6ect the ootwear industry to so"e e;tent% ducational and Career (rends: - With +arious sche"es launched in )ndia pro"oting
o we can say that all these social actors lie the de"ographic di+idend o )ndia, ducational and Career (rends a"ong the people, the cultural (rends, "ploy"ent 8e+els, consu"er Buying
Te()nolo*i(al Analysis o' Footwear Indstry •
Competin technoloy developmentL - The industry is poised for adoptin the modern and state-of-the-art technoloy to suit the e0actin international re?uirements and standards. . $any units are e?uipped with n-house Desin Studios incorporatin state-of-the-art CAD systems havin 8D Shoe Desin pac/aes that are intuitive and easy to use. $any ndian footwear factories have also ac?uired the SF 2''' SF %)''' as well as the SA (''' certifications. E0cellent facilities for Physical and Chemical testin e0ist with the la1oratories havin tie-ups with leadin international aencies li/e SAT:A U+ and PB Germany. Technoloical competence of ndia particularly for mid and hih priced footwear sements has proven 1eneficial in the 1oom of this industry.
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ndia offers 1enefits li/e low cost of production a1undant raw material and a hue consumption mar/etL - Kith its immense populations and a1undance in leather the consumption mar/et of the footwear has increased many folds in the previous years. ndia offers cheap la1our resultin in low cost of production which is the main prere?uisite for any industry. This has attracted many multinational footwear 1rands to come and esta1lish in ndia. Alon with these many local footwear 1rands have also cropped up and entered the mar/et. Strenth of ndia in the footwear sector oriinates from its command on relia1le supply of resources in the form of raw hides and s/ins ?uality finished leather lare installed capacities for production of finished leather footwear lare human capital with e0pertise and technoloy 1ase s/illed manpower and relatively low cost la1or proven strenth to produce footwear for lo1al 1rand leaders and ac?uired technoloy competence particularly for mid and hih priced footwear sements. :esource strenth of ndia in the form of materials and s/illed manpower is a comparative advantae for the country.
$anufacturin maturity and capacityL - The footwear sector has matured from the level of manual footwear manufacturin methods to automated footwear manufacturin systems. There are appro0imately ),'' units involved in manufacturin footwear in ndia. ndia is often referred to as the sleepin iant in footwear terms. t has an installed capacity of &''' million pairs second only to China. The 1ul/ of production is in men4s leather shoes and leather uppers for 1oth men and ladies. t has over &'' fully mechani=ed modern shoe ma/in plants as ood as anywhere in the world !includin Europe#. nnovation PotentialL - The advent of technoloy and the technoloical e0chane 1ecause of the comin of $C4s in ndia has resulted in increase of innovation potential of this industry in ndia. $any multi national and local 1rands are spendin a lot on innovatin and improvin on the e0istin trends to match the consumer demands and cultural trends of ndia.
visit the outlet for purchasin as you can now purchase from your home or office. Secondly it ives them a lot of variety to choose from. Fther policies li/e 8' day replacement uarantee also adds to the 1enefits of usin E-Commerce we1sites. i/e partnered with online retailers such as $yntra and
Diital $ar/etinL - $any companies are usin diital media for their product advertisin and sponsorin at ma"or events oranised in ndia. n &'%& Puma tied up with tow P teams Sunrisers 7ydera1ad and :a"asthan :oyals. t is also the official licensin partner for Berrari and the supplier of team and race wear for Scuderia Berrari. Adidas is Ffficial sportswear partner for Borce ndia :ee1o/ has dedicated a collection of apparel and accessories inspired 1y the Borce ndia B% team. Kith the use of diital mar/etin alon with the famous and people4s favourite local superstars and sports-stars there has 1een constant rowth in this industry. Technoloy 1rouht innovation and invention in the footwear industry of ndia. The producers shifted towards desinin of products 1ased on the cultural and demoraphic need of the country. This coupled with cheap la1our and rise of ecommerce has resulted in rowth of this industry in ndia. ot only the $C4s 1ut also the local manufacturers have also 1een 1enefitted from the technoloical advancement the country has witnessed.
Le*al Analysis o' Footwear Indstry •
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T awsL - n case of developin nation li/e ndia it is very important to e0pand footwear industry share in lo1al mar/et 1y ta/in advantae of UCA law. n the current era of economic affairs it is imperative that trade policies across the world ensure a level competin round throuh laws that mandate enuine trade practices. n Kashinton and ouisiana states of the United States the most recent step towards the Unfair Competition Act !UCA# that has already 1een enforced in &'%%. Those states sined a law to prevent manufacturers usin illeal T to 1e a1le to e0port their oods to the country. After adoption of this law in two states all states in USA have similar mindset for UCA which is an indication for e0porters that practicin without leal T is threat for their 1usiness with USA. They have to ensure lawful 1usiness practices and use of leal software in their supply chain there1y preventin the manufacturers usin illeal T from havin advantae over the enuine traders. t is therefore time for lo1al e0porters to completely leali=e the T usae in all 1usiness practices and not only ensure 1ut also e0pand their lo1al trade share. Biscal PolicyL- Government Spendin and Ta0ation %. B:AST:UCTU:EL infrastructural
Accordin
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!B:AST:UCTU:E BACE CF.# will evolve a ta/eout financin scheme in
consultation with 1an/s to facilitate incremental lendin to the infrastructure sector. A new scheme :a"iv Awas o"na will 1e introduced with the aim to ma/e the country slum free in ne0t , years. Bootwear industry plans to raise fund from domestic and overseas economic sectors in form of "oint venture association esta1lishment of shareholdin companies issuance of shares and 1onds in stoc/ mar/et. Bootwear industrial par/s will 1e 1uilt encompassin ood infrastructure conditions and environmental treatment facilities in a 1id to draw and facilitate investment in footwear industry. &. E%8loy%entL Althouh ndia4s share in lo1al economy is low however 1ein a la1our-intensive industry its contri1ution to employment is sinificant. n recent study it was hihlihted that the total employment in footwear sector would amount to &., million ! 8'3of which are women#. Bootwear industry provides employment to uneducated population-)'3 of employment is represented 1y uns/illed wor/ers doin ta1le wor/ operation in assem1ly line. The footwear industry has potential to provide employment across all sections of the economy. The estimated employment potential of footwear industry is to provide 8 la/h "o1s in ne0t 8 years. 8. Interest Pay%entsL Due to fiscal consolidation in last four years interest payments as percentae of total revenue receipts !net# of central overnment has shown a sinificant improvement. Accordin to the 1udet estimation &''2-%' it is estimated as 8*.93 from 8*.93 in &''(-'2. The &3 interest su1vention scheme provided 1y ndian overnment for certain la1our intensive sectors has 1een e0tended from septem1er8' &''2 to march8%&'%' which includes footwear sector of the industry. This will facilitate reduced interest rate O
ndian overnment to 1oost footwear industry in ndia. The lowerin of value addition norms under DB:C scheme from 883 to &,3 would 1enefit the e0porters of leather oods includin leather footwear. Bundin is availa1le to ena1le tanners to modernise manufacturin facilities in footwear sector. $achinery also 1enefits from duty free@concessional import reulation. There is concessional rate of interest on e0port credits to mitiate the effects of rupee appreciation which has led to tihtenin of credit. Fn the smaller scale there is a scheme /nown as Hsupport to rural artisans scheme mar/etin and technical support for traditional and ethnic ndian footwear products such a mo"puri "ooti and /ohlapuri is 1ein provided. Government also provided support in terms of improved infrastructure .Duty free import of raw material !namely raw s/ins hides etc...# *. E98ort Growt) L E0ports can 1ecome enine of rowth for the entire economy as it develops. ndia is larest producer footwear producer after China. t comprises )&.))3 e0port of footwear. n this view to 1oost e0ports ndian overnment has ta/en various measuresL •
Ad"ustment assistance scheme to provide enhanced e0ports credit and uarantee corporation !ECGC# cover at 2,3 to 1adly hit sectors e0tended up to march &'%'.
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nterest su1vention of &3 on preshipment credit for 9 employment oriented e0port sectors e0tended 1eyond the current deadline of septem1er8' &''2 to march8% &'%'.
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To facilitate flow of credit at reasona1le rate :s.)'''crore provided as special fund out of rural infrastructure development fund to small industry development of ndia This will incentivi=e 1an/s and state finance corporation to lend to micro and small enterprises 1y refinancin ,'3 of incremental lendin to $SE4s durin current financial year. 9. P$li( "e$t. Due to the slowdown in the economy in few last years overnment raised its 1orrowins. Bootwear industry shall raise funds from domestic and overseas economic sectors in form of shares and 1onds in the stoc/ mar/et. (. F"I ,Forei*n "ire(t In&est%ent-. i1erali=in BD was another important part of ndia4s reform driven 1y 1elief that this would increase total volume of investment in ndian economy. A list of investment pro"ects will 1e prepared in 1id
to call for investors at home and a1road encourain the involvement of domestic forein economic sector in investin in footwear industry.