The Crisil Ratings has raised a red flag for India’s leather and allied products industry: revenues are projected to fall by 10–12 % year-on-year in FY26. The culprit? A hefty **50 % tariff imposed by the United States on Indian goods — combining a 25 % reciprocal tariff with an additional 25 % penalty tied to Russia-oil purchases. The Economic Times+2Business Standard+2
For an industry where exports account for around 70 % of revenue (estimated ~₹56,000 crore in FY25), and ~22 % of export volume goes to the US, this is a storm-cloud moment. The Economic Times+1

What’s causing the drop?

• The US tariff structure: India now faces a combined 50 % tariff on many goods, making Indian leather exports much less competitive compared with countries facing lower rates (like Cambodia, Italy, Vietnam, France at 15-20 %). The Economic Times+1

• Export volume hit: Crisil estimates export volumes will drop by around 13–14 % in FY26, especially in the US market where finished leather products (shoes, accessories) fetch higher realisations and are now severely hit. UniIndia+1

• High export dependence: With ~70 % of industry revenue export-driven, a slack in external demand cannot be fully offset by domestic growth. BizzBuzz+1

• Cost/profit pressures: Operating profitability is expected to decline by 150-200 basis points (bps), driven by weaker export performance and hence lower absorption of fixed costs. The Economic Times

Offsetting factors / glimmers of hope

• Domestic demand: Rationalisation of GST (from 18 % to 12 % on leather products) increases affordability and premiumisation in the home market. UniIndia+1

• Macros in favour: Lower income taxes, benign inflation, and low interest rates may boost domestic consumption. Business Standard

• Free Trade Agreement (FTA) with UK and diversification efforts: While still early, exporters are exploring new markets and outsourcing/shift production to regions with favourable duty structure. UniIndia

• Raw material cost relief: A modest decline in raw and tanned leather prices offers some solace, although not enough to neutralise the tariff blow. The Economic Times

Implications for businesses and credit profiles

For leather exporters, the twin impact of declining revenue and squeezed profitability means weaker credit metrics: lower net cash accruals, tighter interest coverage, and reduced ability to leverage fixed-cost structures. The industry’s risk profile is rising. UniIndia
Smaller tanneries and units heavily reliant on US exports are especially vulnerable: order cancellations, production shutdowns have already been reported. Business Standard

Strategic moves to navigate the challenge

• Diversify export markets: Shift focus away from the US to regions where tariffs are lower or competitive advantage remains.

• Localise value-addition: Emphasise domestic sales, premium leather goods, and brand development to reduce reliance on basket exports.

• Cost management & supply chain agility: Optimize fixed costs, explore outsourcing to lower tariff jurisdictions, manage raw material inputs.

• Leverage policy support: Benefit from GST reduction, tax incentives, explore FTAs and duty-free access opportunities.

• Monitor tariff & trade policy trends: Stay ahead of changes in US-India trade negotiations, retaliatory duties, and global supply-chain shifts.

Conclusion

The Indian leather and allied products industry stands at a critical juncture: facing a 10-12 % drop in revenue in FY26 as a consequence of the 50 % US tariff, the sector must pivot quickly. While domestic demand and favourable policy moves provide some relief, they are unlikely to fully offset the export shock in the short term. Industry players who act decisively — diversifying markets, realigning cost structures, and tapping domestic potential — will be better placed to weather the storm. For the rest, the credit and profitability squeeze will deepen. The message is clear: in the new global trade environment, export-heavy businesses must adapt or face serious headwinds.