Fuelled by exports, leather units to turn the corner: CRISIL SME Tracker

Leather exports plummeted in the first quarter following lockdowns and restrictions in importing nations
India’s leather industry, which is dominated by small and medium enterprises (SMEs), with 12,000-14,000 units and about Rs 67,000 crore in revenues, appears set to turn the corner after taking a hit over the past 18 months due to muted global demand, made worse by the pandemic.  

As per Directorate General of Foreign Trade data, the year-on-year decline in export value was a mere 5 per cent in the second quarter of FY2021, compared with 55 per cent in the first. This was significant because exports, with some 51 per cent share in total revenue, are the mainstay of the industry.  

Leather exports plummeted in the first quarter, following lockdowns and restrictions in importing nations. About 70 per cent of the orders were either cancelled or put on hold by major destinations such as the US, Germany, Italy, France and Spain, which together account for a share of over 55 per cent in India’s exports.

However, as economies opened up, exports have recorded continuous improvement. Newer destinations such as Malaysia, Russia and Turkey also contributed to the recovery. Demand for casual leather products such as jackets, belts and garments surged, while that for more formal items (shoes and briefcases) remained flat, as people continued to work from home.

However, domestic demand is expected to see continued disruption in the retail segment, especially footwear (about 77 per cent share in domestic revenue), as most white-collar workers still work from home. However, gradual recovery in income sentiment, coupled with the hike in import duty on leather footwear from 25 per cent to 35 per cent in the 2020 Budget, is expected to have a marginally positive impact on domestic sales, especially in the next fiscal year.

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