New Delhi, Oct 23 (UNI) The leather and allied product industry in India will see revenue decline of 10-12pc per cent on-year this fiscal as 50 pc tariff imposed by the United States will slash export volume, a CRISIL report said today.
The Credit Rating Information Services of India Limited (CRISIL) report said, “Given the significant export concentration, the decline would be despite a moderate improvement in domestic demand following the rationalisation of Goods and Services Tax (GST), besides other favourable macro-economic factors such as lower income tax, benign inflation and low interest rates.”
Jayashree Nandakumar, Director of Crisil Ratings, said, “With loss of orders from the US, the export volume is expected to drop 13-14pc this fiscal. Revenue will be hit harder as the bulk of exports to the US is of finished leather products such as shoes and leather accessories, which fetch higher realisations.”
Nandakumar said at USD 14 per unit (on a weighted average basis), realisation on these finished goods is 14-15pc higher than on the overall basket. Thus, export revenue is projected to fall 14-16pc to USD3.9-4 billion this fiscal.”
Crisil said the leather and allied products industry is estimated to have logged a revenue of Rs 56,000 crore in Fiscal 2025 and exports accounted for 70 pc of the revenue pie.
A large chunk of exports was also to the European union (over 50 pc) and the US (22pc).
Crisil Ratings said it understands that exports to the US have been severely hit with orders cancelled or put on hold since the 50pc tariff became effective. The report said that numerous entities, particularly the tanneries and small leather product manufacturing units with significant exposure to the US, were shut down in the past two months.
To deal with this revenue loss, exporters are resorting to measures such as diversifying to other markets with a favourable duty structure and shifting/outsourcing production to other regions. However, these are still in nascent stages and will take time to implement and bear fruit, especially given the macro uncertainty.
The Crisil report also showed hope as the recently signed Free Trade Agreement (FTA) with the United Kingdom, sustained demand from markets apart from the US, and the efforts to penetrate other export destinations may help contain the fall in export revenue.
Highlighting the situation in the domestic market, Crisil said that the reduction of GST on leather products from 18pc to 12pc is expected to enhance the affordability and drive premiumization.
Moreover, the income tax benefits announced in the union Budget, combined with lower interest rates resulting from policy rate cuts by the Reserve Bank of India and stable inflation rates, are likely to boost consumption.
Athul Sreelatha, Associate Director of Crisil Ratings, said: “Leather manufacturing is highly labour intensive and involves significant fixed costs of 25-30pc by way of salary, leases and maintenance, among other expenses. Lower revenue and weak fixed cost absorption will compress the operating profitability of exporters by 250-300 bps this fiscal.”
Sreelatha said, however, the growth in domestic revenue restricts the decline in the operating profitability of the overall industry to 150-200bps.”
