India’s footwear and leather exports may be affected by the slowdown in advanced economies. So says Crisil.

Labor-intensive categories such as leather articles, footwear and textiles have the highest export dependence on economies like the US and Europe. A global slowdown is predicted in 2023 as a result of the manifestation of continued tightening of monetary policies across the globe.

The forecast of a global slowdown, says Crisil, is worrisome since, over the years, India’s growth cycles have become highly synchronised with the advanced economies of the US and Europe. Much of the leather apparel and accessories produced in India are exported, with Europe and North America accounting for 75 per cent of orders.

Though domestic demand for the leather apparels and accessories segment remains resilient, the overall sectoral revenue is seen declining in the medium term. As costs remain high, operating margins of companies are expected to compress by 150 basis points this fiscal and will remain range bound at six per cent to 6.5 per cent over the medium term. Given the increased raw material cost, inventory holding has become costlier.

Additionally, due to lower cash generation, the working capital requirement at the sector level will be 15 per cent to 20 per cent higher in the near term.