India’s textile exports face short-term challenges due to steep US tariffs, but the India-UK Free Trade Agreement (FTA) and potential EU deals offer significant growth opportunities. Duty-free access to the UK market, government support measures, and diversification into new markets are expected to offset losses, ensuring long-term resilience for RMG, home textiles, and cotton products.
The imposition of steep 50% reciprocal tariffs by the United States on Indian goods, effective August 27, has cast uncertainty over India’s textile exports. The US has traditionally been India’s largest market, accounting for 28–29% of textile and apparel exports in the past four years ending CY24. These exports are dominated by cotton-based products, mainly home textiles and apparel, which together formed 90% of shipments in CY24.
According to CareEdge Ratings, India’s textile exports are expected to decline by 9–10% in CY26 due to these tariffs. “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. He noted that the extent of the decline will depend on how effectively exporters negotiate prices with US buyers to preserve volumes.
Reacting to the move, India’s Commerce Ministry said on August 28 that while the tariffs will have a short-term impact on exports, especially in textiles, chemicals, and machinery, their long-term effect on overall trade and GDP will remain limited.
India-UK FTA: A game changer
While the US tariffs pose challenges, the recently concluded India-UK Free Trade Agreement (FTA) is expected to soften the blow. CareEdge Ratings described it as a game changer for India’s Readymade Garments (RMG) and home textile sectors, creating a level-playing field for Indian exporters in the nearly USD 23 billion UK import market.
ICRA supported this view, showcasing that India’s apparel and home textile trade with the UK will double over the next five to six years, once the FTA comes into effect by 2026 after legal formalities. The agreement, signed on May 6 after almost three years of negotiations, will see India eliminate tariffs on 90% of British goods, while the UK will remove duties on 99% of Indian exports, including textiles.
Currently, Indian apparel and home textiles face tariffs of 8–12% in the UK. Their removal will enable India to compete on par with countries such as Bangladesh, Vietnam, and Pakistan, which already enjoy duty-free access.
India is currently the fifth-largest supplier of apparel and home textiles to the UK. In 2024, exports in these categories stood at US$ 1.4 billion, accounting for 6.6% of UK’s textile imports. With duty-free access under the FTA, India’s share is projected to climb to 11–12% by 2027, reflecting a robust CAGR of 11%.
The UK’s textile import market is dominated by China (25%), Bangladesh (22%), Turkey (8%), and Pakistan (6.8%). The FTA is expected to significantly boost India’s position in this competitive landscape and encourage domestic capacity expansion over the next 4–5 years to meet rising demand.
CareEdge Ratings also highlighted that the expected loss in RMG and home-textile exports to the US could be partly offset by higher shipments of cotton yarn and fabric, where India enjoys backward integration advantages compared to competitors. “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,” said Krunal Modi, Director at CareEdge Ratings.
Outlook
The Government of India has announced supportive measures to maintain competitiveness. “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. These measures are expected to help Indian exporters counteract the short-term pressures arising from US tariffs.
Furthermore, ongoing FTA negotiations with the European Union are anticipated to open additional avenues for Indian textile exports, signaling a strategic realignment of trade partnerships. The interplay of headwinds and opportunities is set to redefine India’s textile trade landscape. On one hand, the imposition of US tariffs could dent margins and slow overall exports. On the other, the India-UK FTA offers significant upside by opening duty-free access to a lucrative market and positioning India to expand its share rapidly.
In the medium term, the UK trade deal, combined with government policy support and diversification into new markets such as the EU, is likely to cushion Indian exporters against short-term setbacks in the US. Capacity expansion in anticipation of demand growth will also be a key factor in sustaining competitiveness. The combination of favourable trade agreements, proactive government interventions, and strategic market diversification is expected to provide Indian textile exporters with both stability and growth opportunities, mitigating the impact of short-term challenges while positioning the sector for long-term resilience and profitability.
FAQs
1. Why are India’s textile exports under pressure?
Steep 50% US tariffs, effective August 27, are affecting cotton-based apparel and home textiles, India’s key export products.
2. How much could exports decline?
CareEdge Ratings expects a 9–10% decline in CY26, with PBILDT margins dropping 300–500 bps.
3. How does the India-UK FTA help exporters?
The FTA provides duty-free access to the UK market, leveling the field against competitors and boosting growth for RMG and home textiles.
4. Can losses to the US be offset?
Yes. Growth in cotton yarn and fabric exports, where India has backward integration, can partly compensate for RMG and home textile losses.
5. What is the overall outlook?
Government support, the India-UK FTA, and potential EU deals are expected to stabilize exports and ensure long-term growth and resilience.
