Increased textile exports from India to the UK under a Free Trade Agreement could potentially counterbalance losses experienced in US markets, according to CareEdge Ratings' analysis.
India's textile industry, a significant contributor to the country's exports, is currently navigating challenging times due to the recent imposition of tariffs by the United States. According to the Commerce Ministry, these tariffs will have a short-term impact on India's exports, particularly in sectors such as textiles, chemicals, and machinery.
The textile sector, in particular, is bearing the brunt of the tariffs. The US has imposed steep 50% tariffs on Indian goods, which came into effect from 27 August. India's largest export market for textile and apparel, the USA, accounts for 28-29% of exports over the last four years ended CY24. Primarily, India exports cotton-based textile products to the USA, predominantly home textiles and apparel, which together accounted for 90% of Indian textile exports to the USA in CY24.
As a result, India's textile export is expected to decline by 9-10% in CY26 due to reciprocal tariffs on Indian textile exports to the United States. However, there is a glimmer of hope. The growth in exports of cotton yarn and fabric may compensate for the loss in Readymade garments (RMG) and home-textile products.
The Government of India is taking steps to support Indian textile exporters. Dedicated outreach programs, export incentives, and interest subsidies are expected to be provided to help mitigate the impact of the tariffs.
Looking beyond the US market, India's textile exports to other key markets such as Bangladesh, the UK, the UAE, and Germany are also significant. The ongoing FTA negotiations with the European Union are expected to open additional avenues for Indian textile exports. The Europe Free Trade Association (EFTA) states: Iceland, Liechtenstein, Norway, and Switzerland, which signed an agreement with India in March 2024 to enter into force in October 2025, could also expand India's textile trade prospects. Additionally, India is engaged in ongoing FTA discussions with the European Union as a whole, with Germany playing a supportive role in accelerating these talks.
The India-UK Free Trade Agreement (FTA) is another promising development for India's textile industry. It is expected to boost Indian textile exports to the United Kingdom, offering a potential alternative market to the US.
The extent of benefit from the India-UK FTA and potential trade agreement with the European Union remains key to monitor. The long-term effect on overall trade and GDP due to the tariffs imposed by the USA is expected to remain limited, according to the Commerce Ministry. The ministry's response indicates a short-term impact on India's exports but a limited long-term effect on overall trade and GDP.
In a positive move, the Government of India has removed 10% import duty on cotton till December 31, 2025, which could potentially stimulate the growth in exports of cotton yarn and fabric. The decline in the margin of Indian RMG and home-textile exporters is expected to be around 300-500 bps, but with the right strategies and market opportunities, the textile industry can overcome these challenges and continue to thrive.
