Business EconomyPosted at: Oct 23 2025 4:40PM


US tariffs to dent India’s leather exports earings: Crisil Ratings

Chennai, Oct 23 (UNI) India’s leather and allied products industry is set to see a 10–12 pc year-on-year revenue decline in FY26 as the 50 pc tariff imposed by the United States, comprising a 25 pc reciprocal duty and an additional 25pc penalty for Russian oil purchases, slashes export volumes, Crisil Ratings said in a report on Thursday.
The fall in exports will persist despite improved domestic demand following GST rationalisation, lower income taxes, benign inflation, and soft interest rates, the agency noted. According to the report, operating profitability is expected to decline by 150–200 basis points, weakening credit profiles across the sector.
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 taxes, benign inflation, and low interest rates, the credit rating agency added.
The analysis of 34 rated leather companies, rated by Crisil Ratings, accounting for about 12.5 pc of industry revenue, shows that exports, which form roughly 70 pc of the sector’s Rs 56,000 crore turnover, are under severe strain. The US and EU together account for over 70 pc of exports, with the US share at around 22 pc.
The report said the newly effective 50% tariff (from August 27, 2025) has already led to cancellations and order delays, particularly hurting tanneries and smaller manufacturers.

Signs of a slowdown in the US export demand were already visible with the 25 pc reciprocal tariff taking effect in the first week of August.
The additional 25 pc punitive tariff, effective August 27, 2025, has placed India at a further disadvantage vis-à-vis other major exporting nations such as Cambodia, Italy, Vietnam and France, where the US tariffs are lower at 15% to 20%.

“With loss of orders from the US, the export volume is expected to drop 13-14 pc 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. Indeed, at about USD 14 per unit (on weighted average basis), realisation on these finished goods is 14-15 pc higher than on the overall basket. Thus, export revenue is projected to fall 14-16 pc to USD 3.9-4 billion this fiscal,” Jayashree Nandakumar, Director said.
Crisil Ratings understands, exports to US have been severely hit with orders cancelled or put on hold since the tariff became effective.
Moreover, numerous entities, particularly tanneries and small leather product manufacturing units with significant exposure to the US were shut down in the past two months. T
o combat the revenue loss and declining profitability, exporters are resorting to measures such as diversifying to other markets with 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.
That said, the recently signed Free Trade Agreement (FTA) with the United Kingdom, sustained demand from markets apart from the US, and efforts to penetrate other export destinations may help contain the fall in export revenue.

In the domestic market, on the other hand, the reduction of GST on leather products from 18% to 12% is expected to enhance affordability and drive premiumisation.
Additionally, 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.
The decline in export demand, coupled with steady supply, is expected to exert downward pressure on raw material prices. While the marginal fall in raw and tanned leather prices may offer limited relief to exporters, it will be insufficient to offset the impact of the steep US tariffs.
Lower revenues will also weaken operating leverage, further compressing the operating profitability of exporters.
Athul Sreelatha, Associate Director said: “Leather manufacturing is highly labour intensive and involves significant fixed cost of 25-30% 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. However, the growth in domestic revenue will restrict the decline in the operating profitability of the overall industry to 150-200 bps.”

That will affect financial profiles, especially debt protection metrics of players, with net cash accrual to total debt ratio and interest coverage seen weakening to 0.1 time and 2.5 times, respectively, this fiscal from 0.2 time and 3.7 times last fiscal.
However, leverage levels are expected to remain stable. The reduction in GST on intermediate leather goods to 5% from 12% should provide some respite by reducing both working capital requirements and reliance on external debt. The absence of any significant debt-funded capital expenditure plans will also keep leverage in check. Total Outside liability to Adjusted NetWorth (TOL/ANW), a measure of overall leverage, is seen stable at less than 1 time this fiscal.
In this milieu, four key factors warrant close monitoring: These are i) the evolving tariff environment and its impact on leather demand, ii) the ability of processors to offset the revenue loss from the US by increasing sales to other markets, iii) the impact of re-export of Indian goods exported to Europe and iv) potential heightened forex volatility, Crisil Rating said.
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