India year-end review 2025: Trapped in the crossfire
Indo-US Trade Relations
The US 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 2024. India primarily exports cotton-based textile products to the US, mainly home textiles and apparel, which together accounted for 90 per cent of Indian textile exports to the US in 2024. The US also buys a fifth of India’s leather goods, from shoes to handbags. Since about one-third of India’s garment exports go to the US, losing this business means directly affecting around 700,000 workers and indirectly impacting another 1.5 million in areas that serve the US market. This made India’s response to the US tariff a cautious one. According to Indian Commerce Ministry, imposition of 50 per cent tariffs by the US will have a short-term impact on the country’s exports, particularly in sectors such as textiles, chemicals, and machinery, with long-term effect on overall trade and GDP remaining limited. However, some economists reckoned that the tariffs could shave up to one percentage point off India’s GDP in 2025.
Tariff Attack
On August 7, the US first imposed a 25 per cent “reciprocal” tariff on Indian exports. Less than a week later, it added another 25 per cent “penalty” tariff for purchasing Russian oil, to be effective from August 27, taking the import duty on certain Indian goods to 50 per cent even as both sides held parallel talks on a trade deal. The duties significantly harmed labour-intensive sectors, such as textiles, footwear and jewellery. At a 50 per cent tariff rate, an Indian-made shirt once sold at $10, now costs US buyers $16.40—far costlier than $14.20 from China, $13.20 from Bangladesh or $12 from Vietnam. Even at 25 per cent rate, India stood less competitive than its Asian peers. Despite this, India continued to import Russian oil, citing that it helps keep energy markets stable and is suitable for its economy.
Instant Industry Impact
With imposition of 50 per cent tariff in August, the garment production lines supplying to US markets came to a halt until further notice, with workers either told to stay home or shifted around to other lines with fewer hours. The first to let go were the contract workers who are often employed on short-term or piece-rate arrangements without any social security protections of regular workers. As US orders slowed down, the factories cut productions and moved workers onto rotation lines, mostly producing for European buyers. Wage insecurity became the biggest source of fear. Small- and medium-sized suppliers became particularly vulnerable by trade crisis. Smaller exporters and MSMEs struggled with reworking production schedules, negotiating raw material costs or shifting manufacturing to other geographies, given their smaller scale and lower bargaining power. Cash flow management became even more critical for them as delayed payments or cancelled orders severely impacted day-to-day operations. Few had the financial reserves to absorb tariff shocks or withstand delayed payments, while those heavily dependent on US brands, without a diversified base of European and domestic brands, were hit the hardest. Many American brands producing for European markets also paused operations in India to avoid risk of building an inventory that would later become too costly and could end up being blocked. Not only American brands but even some European brands used the desperation of Indian suppliers to push prices down, being fully aware that peak-season production for upcoming Christmas and New Year season made it almost impossible for factories to refuse.
As a later date impact of US tariff, India's textile export is estimated to decline by 9-10 per cent in 2026, and with expected loss of revenue and partial tariff absorption, PBILDT (Profit Before Interest, Lease, Depreciation and Tax) margin of Indian apparel and home-textile exporters is forecast to decline by 300-500 bps.
Turmoil Within
Faced with shrinking orders, Indian exporters began undercutting each other to hold on to clients by offering discounts, even if it meant suffering a loss. Factories in Tiruppur, as well as Noida in Uttar Pradesh, near Delhi, and Gujarat, shuttered production lines. Indian exporters rushed shipments to the US in August to beat the fall of the tariff hammer. Leather exporters, too, braced for tough times. It is not just the garment exporters who took the hit but also the ancillary industries, and migrant labourers. An estimated around 3,000 allied units, comprising spinning, knitting, printing, embroidery etc, of which around 90 per cent being MSMEs employing roughly one million people, were hit directly or indirectly.
Brands made U-turn
Major US retailers such as Walmart, Amazon, Target and Gap Inc., paused or halted orders, with exporters receiving written instructions to suspend shipments until further notice. Buyers were unwilling to share the increased costs, estimated to have risen by 30-35 per cent, and pressurised exporters to absorb the full burden. While brands willed to accept the goods that had already been shipped, the rest of the orders were put on hold. While dealing with 25 per cent tariff, some brands managed costs by ‘de-specing’ (reducing product features to keep prices stable), similar to shrinkflation (reducing size or weight of food products keeping price intact), but with the tariff escalating to 50 per cent, such measures were not enough. Manufacturers remained unclear on how the October-November bookings-in-production would be handled under new and hiked tariffs. Finished goods and ready-to-be-shipped were kept on hold because of uncertain situation. This hesitation extended to the recently placed orders also. Those with manufacturing units abroad utilised their relatively better position and shifted US-bound production to overseas facilities.
Crisis in South
In Tiruppur, the southern city in Tamil Nadu accounting for 68 per cent of India’s knitwear exports and employing roughly 600,000 people in textile sector, the orders halted following the 50 per cent levy. The tariff blow was particularly cruel as Tamil Nadu’s textile belt had actually been gearing up for a rebound in the US demand on the back of the initial round of higher tariffs on other countries. Many exporters had invested in new machinery, anticipating a surge in orders, including from the India-UK free trade agreement. Nearly 20 per cent of the over 2,500 export-dependent companies in the city shut down entirely, while others slashed production by more than half. The tariff caused a massive pile-up of unsold inventory, leaving manufacturers unable to pay workers or sustain operations. The crisis rippled beyond garment manufacturing, affecting dyeing units, tailoring shops, accessory suppliers, and logistics providers, effectively stalling the entire industrial ecosystem of the region.
American buyers stalled orders and renegotiated previously placed orders with knitted apparel exporters and SMEs operating with 8 to 15 per cent margins. While some companies offered 5 per cent discount on prices, yielding a 7 per cent reduction in landed cost, some companies offered discounts without any margins. By September, the ancillary sectors such as carton box, polybag manufacturing, and transportation were also hit. Cotton farmers too braced for losses, with crop prices falling below the MSP (minimum selling price) in the new cotton season beginning October 1.
Tiruppur faced a severe economic and humanitarian crisis too, leading to an estimated 30 per cent job loss across the industry and triggering an exodus of migrant workers, primarily from states like Odisha, Bihar, and Uttar Pradesh, who form the backbone of the region’s workforce. A large share of workers in Tiruppur are home-based, many are women and at the very end of the production chain. Women there earn less than a dollar a day and found themselves deprived even of that.
Trouble in North
Ludhiana, one of India’s biggest textile hubs in the northwestern state of Punjab, was particularly exposed. Each year, the city ships approximately $700 million worth of hosiery and knitwear, especially woollens, to the US, and the local industry employs more than 500,000 workers. The Ludhiana spinning mills supplies yarn to the city’s textile factories, which produce woollen knitwear, hosiery, and other garments, much of which is further destined for the US. Within just two weeks of imposition of 50 per cent tariff, orders for yarn plunged by nearly 30 per cent with no clarity on future orders. Smaller brands that used to procure from Ludhiana stopped placing orders. The larger ones, tied into longer contracts, still allowed production-in-cycle to finish but with condition of absorption of 25 per cent of the tariff burden by the factories, making their operations brutally cut-throat, with margins collapsing. Even the raw materials that Indian firms source from overseas to use in their products faced new levies, raising serious concerns about potential disruptions to supply chains.
Panipat, a town in Haryana, is one of the world’s largest textile recycling hubs and India’s biggest supplier of blankets, carpets and shoddy yarn. It had an export turnover of about ₹200 ($2.2) billion to the US, of which home textiles alone accounted for about ₹120 ($1.3) billion in annual sales, making up roughly 60 per cent of the city’s total exports. Some local manufacturers in the town considered rerouting their supply chains through countries such as Bangladesh or Vietnam to facilitate exports to the US. They either planned to set up warehouse facilities in these countries and carry out minimal value addition there, or were in talks with US importers for additional support to make this arrangement viable.
Home Textile’s Anticipated Fall
Home textile manufacturers were predicted for a 5-10 per cent decline in revenue, apart from reduction in operating profitability, after imposition of 50 per cent tariff coming into effect on August 27, 2025. CRISIL Ratings analysed about 40 home textile companies, accounting for 40-45 per cent of the industry revenue, to forecast this fall. Exports of home textiles to the US grew a modest 2 to 3 per cent in Q1, FY26 as retailers became cautious of the demand amid inflationary concerns. Before implementation of 50 per cent tariffs, exports had spiked because of some frontloading of orders. With competing countries having limited capacity to make cotton-based home textile products, the overall revenue decline for the industry will be limited to 5 to 10 per cent. The impact will be more profound on the companies generating more than half of their revenues from the US. Indian manufacturers will have to look at alternative markets in the EU and the UK, which together accounted for almost 13 per cent of India’s home textile exports last fiscal. However, this will take time. With Indian exporters forced to absorb part of the higher tariffs, some expected inflation-induced reduction in demand from the US and potential oversupply in the EU market will make industry-level operating profitability to fall 200-250 bps compared to last fiscal.
Silver Lining
Amidst a series of setbacks in 2025, Indian apparel manufacturers found a salvaging window. Many big US retailers, such as Nike, Levi’s, Tommy Hilfiger and Walmart (through Flipkart) have a strong retail presence in India, which is not just a production hub but also a major retail market for them. Their retail presence carries importance because under India’s FDI rules, foreign single-brand retailers with 100 per cent ownership must source at least 30 per cent of what they sell in India from within the country. This sourcing rule is averaged over the first five years and then becomes an annual requirement. Therefore, even if US-bound exports slow down because of tariffs, these brands will still need Indian manufacturers for their local stores. This provided some solace to the troubled apparel manufacturers in the country.
Comprehensive Economic & Trade Agreement (CETA)
Sensing more trouble coming from the US tariffs after 90-day reprieve, India timely signed CETA with the UK, the nation’s third-largest export destination which accounted for 5.80 per cent of textile exports in 2024, on July 24. India is the fourth-largest textile supplier to the UK, with a 6.6 per cent market share ($1.79 billion). With CETA, India’s textile exports will be able to enter the UK duty-free, once the agreement comes into force. This move removed previous tariff disadvantages and provided a competitive edge to Indian exporters vis-a-vis regional rivals like Bangladesh and China. The pact is seen to potentially double India’s share of UK imports from 6 per cent to about 12 per cent and in volume terms, the pact can boost textiles exports to the UK by 30-45 per cent by 2030, translating into an additional $500-800 million in export value. India’s free trade pact with the UK will boost shipments of garments, home textiles, carpets and handicrafts. Domestic exporters can leverage the trade agreement to significantly tap opportunities in Britain, which imports $27 billion worth of textiles annually.
Expectation from the Government
To soften the blow of 50 per cent tariff by the US, the Indian government announced some measures, including a suspension of import duties on raw materials. Trade talks with other countries also gathered momentum to diversify markets. The government removed 10 per cent import duty on cotton till December 31, 2025. In addition, the Indian textile exporters want support in the form of expanding of export markets through government’s dedicated outreach programme to 40 nations, as well as export incentives and interest subsidies, to support the competitiveness and profitability of Indian textile exporters. 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.
Moving Ahead
It is widely expected that the losses incurred due to the imposition of reciprocal tariffs by the US on Indian textiles will be greatly offset by increased exports to the UK. Ongoing EU trade negotiations may further boost India’s textile trade, opening additional avenues, signalling a strategic realignment of the nation’s textile trade landscape. Overall, while textile exports are expected to decline, government support and growth in yarn and fabric exports could mitigate the impact.
Fibre2Fashion News Desk (SB)
