US tariffs to hurt Indian leather industry, revenue may drop by 12%

Mumbai: The Indian leather and allied products industry is bracing for a 10–12% revenue decline this fiscal year, driven by the United States’ (US) imposition of a 50% tariff – comprising a 25% reciprocal tariff and a 25% penalty for purchasing Russian oil. The tariffs, which came into effect in August 2025, are expected to reduce export volumes by 13–14%, with export revenue projected to fall by 14–16% to $3.9–4 billion.  Finished leather products such as shoes and accessories, which fetch higher realisations of approximately $14 per unit, are particularly affected, further exacerbating the revenue loss.

“With loss of orders from the US, the export volume is expected to drop 13–14% this fiscal,” said Jayashree Nandakumar, Director at Crisil Ratings. “Revenue will be hit harder as the bulk of exports to the US is of finished leather products, which fetch higher realisations.”

The industry, which generated approximately ₹56,000 crore in revenue in fiscal 2025, relies heavily on exports, with the US accounting for 22% of the total and the European Union over 50%. The higher tariffs have placed Indian exporters at a disadvantage compared to competitors from countries like Cambodia, Italy, Vietnam, and France, where US tariffs are lower at 15–20%. Many Indian tanneries and small leather product manufacturers with significant exposure to the US market have already shut down operations.

The decline in export demand is expected to compress operating profitability by 150–200 basis points, with exporters struggling to absorb fixed costs such as salaries, leases, and maintenance. “Lower revenue and weak fixed cost absorption will compress the operating profitability of exporters by 250–300 basis points this fiscal,” said Athul Sreelatha, Associate Director at Crisil Ratings. “However, growth in domestic revenue will restrict the decline in the operating profitability of the overall industry to 150–200 basis points.”

Financial metrics are also set to weaken, with the net cash accrual to total debt ratio and interest coverage projected to drop to 0.1 times and 2.5 times, respectively, from 0.2 times and 3.7 times last fiscal. Leverage levels, however, are expected to remain stable due to reduced GST rates on intermediate leather goods and the absence of major debt-funded capital expenditure plans.

To mitigate the impact of the tariffs, exporters are exploring diversification into markets with favourable duty structures and relocating production to other regions. However, these measures are still in their early stages and will take time to yield results. The recently signed Free Trade Agreement with the United Kingdom (UK) and sustained demand from non-US markets may help limit the decline in export revenue.

In the domestic market, the reduction in goods and services tax (GST) rate on leather products from 18% to 12% is expected to enhance affordability and drive premiumisation. Combined with lower income taxes, stable inflation, and reduced interest rates, these factors are likely to boost domestic consumption. Meanwhile, the decline in export demand is expected to exert downward pressure on raw material prices, providing some relief to exporters, though not enough to offset the impact of the tariffs.

Crisil Ratings, which analysed 34 leather companies representing 12.5% of the industry’s revenue, highlighted four key factors to monitor: the evolving tariff environment, the ability to offset US revenue losses by targeting other markets, the impact of re-exported goods to Europe, and potential forex volatility.