Faced with US tariffs, India's leather and allied products industry are expected to see revenue decline 10-12 per cent this current fiscal, according to Crisil Ratings. The 50% tariff (25% reciprocal tariff plus 25% penalty for purchase of Russian oil) imposed by the United States (US) on Indian goods will slash export volume, the rating agency said Thursday.

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, it is further observed.

Operating profitability may slide 150-200 basis points (bps), primarily driven by headwinds in the export segment, and the muted operating performance will, in turn, weaken credit profiles.

Crisil Ratings has analysed 34 leather companies, comprising around 12.5% of the industry revenue.

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% of the revenue pie. A large chunk of the exports was to the European Union (over 50%) and the US (22%).

Signs of a slowdown in the US export demand were already visible with the 25% reciprocal tariff taking effect in the first week of August.

The additional 25% punitive tariff, effective August 27, 2025, has placed India at a further disadvantage vis-a-vis other major exporting nations such as Cambodia, Italy, Vietnam and France, where the US tariffs are lower at 15% to 20%, the rating agency has asserted.

Jayashree Nandakumar, Director, Crisil Ratings, "With loss of orders from the US, the export volume is expected to drop 13-14% 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."

Crisil Ratings understands that exports to the US have been severely hit with orders cancelled or put on hold since the 50% 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.

To combat the revenue loss and declining profitability, exporters are resorting to measures such as diversifying to other markets witha favourable duty structure and shifting/outsourcing production to other regions.

However, these, according to the rating agency, 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," it supplemented.

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 premiumization. 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, along with steady supply, may put downward pressure on raw material prices. The marginal decline seen in raw and tanned leather prices will provide some relief to exporters, but not enough to offset the tariff impact.

Over the past few months, India and the US have been negotiating for an interim trade deal President Donald Trump announced 25 per cent tariffs on Indian goods in July, even as there were hopes of an interim India-US trade deal that would have otherwise helped avoid elevated tariffs. A few days later, he imposed another 25 per cent tariff, taking the total to 50 per cent, citing India's continued imports of Russian oil. The 50 per cent tariffs came into effect on August 27.

India and the US initiated talks for a just, balanced, and mutually beneficial Bilateral Trade Agreement (BTA) in March this year, aiming to complete the first stage of the Agreement by October-November 2025.

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