Budget 2026: Duty Reforms Spark Rally in Footwear & Leather Stocks

Budget 2026 Delivers for Footwear and Leather

The Union Budget 2026, presented by Finance Minister Nirmala Sitharaman, has delivered a series of targeted measures for India's footwear and leather industry. Facing significant pressure from high US tariffs and grappling with structural cost disadvantages, the sector had high expectations. The budget addressed several long-standing demands, focusing on enhancing export competitiveness, strengthening domestic value chains, and easing operational hurdles for the predominantly MSME-based industry. Key announcements include the correction of inverted duty structures, an extension of the export obligation timeline, and expanded duty-free benefits for critical inputs, setting the stage for a potential re-rating of the sector.

Correcting the Inverted Duty Structure

A major victory for the industry is the government's commitment to correcting the inverted duty structure. For years, manufacturers have pointed out the anomaly where import duties on raw materials and intermediate components—such as synthetic fabrics, accessories, and finished leather—were higher than those on finished footwear. This structure made domestic manufacturing uncompetitive against imports and discouraged value addition within the country. The budget's proposal to simplify the tariff structure and explicitly correct such inversions will lower production costs, ease working capital pressures, and provide a significant boost to domestic manufacturers.

Key Policy Announcements for the Sector

The Finance Minister announced several specific measures aimed directly at providing operational relief and promoting exports:

• Extended Export Obligation Period: The time period for fulfilling export obligations for leather garments, synthetic footwear, and other leather products has been extended from six months to one year. This provides exporters with much-needed flexibility in managing production cycles and navigating global supply chain uncertainties, reducing compliance pressure.

• Expanded Duty-Free Imports for Components: The facility for duty-free import of specified inputs, previously available for finished leather and synthetic footwear exports, will now be extended to the export of shoe uppers. This is a critical move that encourages domestic manufacturing of higher value-added components and strengthens backward linkages, a key weakness for the industry.

• Sports Goods Manufacturing Initiative: A dedicated initiative to promote the manufacturing, R&D, and innovation in sports goods, including athletic footwear, signals a strategic focus on a high-growth segment of the market. This will help India compete with global players like China and Vietnam.

Summary of Budget 2026 Reforms

Budget 2026 Announcement	Pre-Budget Status	Post-Budget Impact
Export Obligation Period	6 months	Extended to 12 months for greater flexibility.
Duty-Free Input Imports	Limited to finished footwear/leather goods	Extended to include shoe uppers, boosting component manufacturing.
Inverted Duty Structure	High duties on raw materials eroded competitiveness	Commitment to correct and rationalize tariffs, lowering input costs.
General Customs Process	Multiple steps, potential for delays	Faster clearances, extended duty deferment, and a single digital window improve efficiency.

Strengthening the MSME Backbone

The footwear and leather industry is dominated by Micro, Small, and Medium Enterprises (MSMEs), which stand to gain significantly from broader budget initiatives. The proposal to rejuvenate 200 legacy industrial clusters with infrastructure and technology upgrades will directly benefit manufacturing hubs. Furthermore, the establishment of a ₹10,000-crore SME Growth Fund for equity support will help promising micro-enterprises scale up. Mandating the use of the TReDS platform for all payments from Central Public Sector Enterprises (CPSEs) to MSMEs will also improve liquidity and shorten payment cycles, addressing a critical pain point for smaller businesses.

Broader Trade Facilitation and Market Impact

Beyond sector-specific announcements, a suite of customs reforms will reduce the cost and time of trade. Measures like extending the duty-deferment period for Authorized Economic Operators (AEOs) to 30 days, implementing a single digital window for clearances, and removing the value cap on courier exports will collectively enhance the ease of doing business. These reforms are particularly timely, as they equip Indian exporters to better capitalize on the market access provided by the new India-EU trade agreement.

For investors, these announcements signal strong policy support for the sector. The combined impact of lower input costs, improved operational efficiency, and enhanced access to finance is expected to boost profitability and growth prospects for footwear and leather companies. This structural policy shift, aimed at building a resilient and competitive domestic manufacturing ecosystem, provides a solid foundation for a potential market re-rating of listed entities in the space.

A Forward-Looking Conclusion

Union Budget 2026 has moved beyond incremental support to address core structural challenges facing the footwear and leather industry. By tackling the inverted duty structure, easing export compliance, and strengthening the MSME ecosystem, the government has laid a clear path for the sector to enhance its global competitiveness. The industry is now better positioned to leverage new trade agreements and scale its manufacturing capabilities, justifying a more optimistic outlook from both businesses and investors.