US-China spat may spell manna for SME leather exporters: CRISIL

CRISIL Research expects 2018-19 to be a good one for India’s small and medium enterprise (SME) leather exporters, given a pick-up in demand from the US and expectations of the Donald Trump administration imposing tariffs on Chinese leather footwear — not in the tariff list currently — early next calendar year. 

SMEs comprise 85-90 per cent of the industry, the majority of these located in clusters — the prominent ones being Kanpur, Agra, NCR, Kolkata and Chennai.

Exports contribute 45-50 per cent of the overall leather and leather products industry’s revenue. The US, the UK, Germany, Spain, France and Italy account for more than half of overall leather exports from India. 

The demand for leather and leather products from Europe (which accounted for 35-40 per cent of the exports market) had dived towards the end of 2016-17 following the Brexit referendum. The year 2017-18 saw growth revive a notch, at three to four per cent on a low base of the previous fiscal year, on account of recovery in European markets. 
 

The next driver could be a fall in Chinese leather exports to the US following the imposition of tariffs.

Further, the government’s directive to increase the rebate given to exporters to five per cent, from three per cent, in the case of loans granted in the pre-shipment and post-shipment stages (which account for over 70 per cent of loans) is expected to give a further fillip to leather exports.

That said, exchange rate fluctuations, increasingly stringent government regulations relating to environmental pollution, and availability of quality raw material are key risks to watch out for.