The loss incurred due to the imposition of reciprocal tariffs on Indian textile exports to the United States (US) may be offset by a surge in exports to the United Kingdom (UK), buoyed by the recently concluded India-UK Free Trade Agreement (FTA), said CareEdge Ratings in a report.
The report said that the ongoing FTA negotiations with the European Union are expected to open additional avenues, signalling a strategic realignment of India’s textile trade landscape.
The India-UK FTA is a game changer for India’s Readymade garments (RMG) and home textile sectors, creating a level-playing field vis-a-vis key competing nations for accessing the nearly USD 23 billion UK import market, the report added.
“India’s textile export is expected to decline by 9-10 per cent in CY26. With expected loss of revenue and partial tariff absorption, PBILDT margin of Indian RMG and home-textile exporters is expected to decline by 300-500 bps,” stated Akshay Morbiya, Assistant Director at CareEdge Ratings.
However, the degree of decline will ultimately hinge on how effectively Indian exporters can negotiate pricing with their US customers to retain volumes, he added.
“The Government of India has removed 10 per cent import duty on cotton till December 31, 2025. Additionally, expected support from the Government in the form of expanding export markets through its dedicated outreach programme to 40 nations, as well as export incentives and interest subsidies, can support the competitiveness and profitability of Indian textile exporters,” said Krunal Modi, Director at CareEdge Ratings.
“Moreover, the export loss of RMG and home-textile products is likely to be compensated by growth in exports of cotton yarn and fabric as the competing nations lack backwards integration in these products. Extent of benefit from India-UK FTA and potential trade agreement with EU remain key monitorable,” Modi added.
The USA has been the largest export market for Indian textile and apparel, accounting for 28-29 per cent of exports over the last four years ended CY24. India primarily exports cotton-based textile products to the USA, predominantly home textiles and apparel, which together accounted for 90 per cent of Indian textile exports to the USA in CY24.
Besides the USA, the other key export markets for India’s textile sector are Bangladesh (7 per cent), the UK (6 per cent), the UAE (5 per cent), and Germany (4 per cent), among others.
The steep 50 per cent tariffs imposed by the United States on Indian goods came into effect from 27 August.
Reacting to the imposition of tariffs, the Commerce Ministry on August 28 said the recent imposition of tariffs by the US will have a short-term impact on India’s exports, particularly in sectors such as textiles, chemicals, and machinery. However, it asserted that the long-term effect on overall trade and GDP will remain limited.