The Indian leather industry is facing a sharp downturn this fiscal year after the United States imposed steep tariffs on Indian exports, leading to widespread order cancellations and weakening export demand. Analysts now forecast a revenue contraction of around 10 – 12 %, underlining the severity of the challenge.
What’s happening?
- According to ratings agency CRISIL Ratings, India’s leather and allied-products industry is expected to see revenues decline by 10 – 12 % this year as export volumes shrink significantly.
- The US has imposed a 50 % tariff (25 % reciprocal + 25 % penalty) on selected Indian imports, which is hitting exporters especially hard.
- The export volume to the US is forecast to drop by 13 – 14 %, according to CRISIL.
- India’s leather industry logged about ₹56,000 crore in revenue in fiscal 2025, with exports accounting for roughly 70% of that total.
- The US accounted for around 22% of India’s leather exports, while the European market made up over 50%.
Why is the impact so severe?
Export concentration
A large portion of the leather industry’s revenue depends on exports, making it vulnerable to international trade shocks. With 70% of revenue coming from exports, a major hit to one market has outsized effects.
Finished product dependency
Much of the US-bound exports are finished leather goods (shoes, accessories) which command higher realisation. Loss of orders in this segment magnifies the hit.
Competitive disadvantage
Compared to other exporting countries like Vietnam, Italy, Cambodia and France—where US tariffs stand at ~15-20%—Indian exporters face a heavier burden with the 50% tariff, putting them at a disadvantage.
Order cancellations & factory shutdowns
Reports indicate that order cancellations are already underway, and some smaller tanneries or units focused on the US market are shutting down production.
Impact on margins & profitability
- Exporters are expected to see operating margins shrink by 150-200 basis points, and in some cases up to 250-300 bps due to lower volumes and fixed-cost burden.
- Debt protection metrics for these firms are under pressure: net cash accrual to total debt ratio could drop to around 0.1x from 0.2x last financial year.
- The full chain—tanneries, finishing units, export houses—is being affected, especially the small and mid-sized players.
Broader background & context
The Indian leather industry has long been a key contributor to export‐led growth. However, the current shock comes amid a broader shift in global trade dynamics:
- The US-India trade relationship is under strain, and the additional tariffs were triggered partly by India’s purchases of Russian oil, which incurred a 25% penalty.
- Globally, supply chains are shifting, and sourcing is gradually moving to other countries for more favourable trade terms.
- The domestic market, while still growing, cannot compensate quickly enough for the loss of foreign demand, particularly for finished goods.
What could help?
Domestic demand support
The government has recently cut the Goods and Services Tax (GST) on leather products from 18% to 12%, which may stimulate domestic consumption and help offset some export losses. Business Standard
Market diversification
Exporters are looking toward other markets beyond the US, including the UK (following the recent Free Trade Agreement) and other emerging regions. However, such shifts will take time.
Operational efficiency & cost control
With fixed costs high in labour-intensive leather manufacturing, improving productivity and shifting to value-added segments may help mitigate some of the damage.
Government policy & support
Targeted relief for MSMEs, export incentives, and infrastructure improvement in tannery clusters could bolster resilience.
Outlook
While the outlook is challenging, especially in the short term, several factors bear watching:
- Whether the US tariffs persist or are eased through diplomatic/trade negotiations.
- The ability of Indian exporters to pivot quickly to alternative markets and products.
- How domestic demand evolves and whether it can make up for export shortfalls.
- The impact on employment and the supply chain, especially in regional leather clusters.
For now, the Indian leather industry faces a significant revenue contraction and margin squeeze. But with proactive measures and strategic pivoting, some of the damage may be contained over the medium term.
