The outlook for the Indian apparel export industry has been revised to Negative from Stable by rating agency ICRA, following the upward revision in tariff rates by the US. The move is expected to adversely impact India’s overall apparel exports, with revenues likely to decline in the coming fiscal.
ICRA in a statement stated, “Lower exports and pressure on pricing to contract industry operating margins by 200-300 bps in FY2026; impact could be steeper for entities with higher concentration on the US market.” According to ICRA, if the recently imposed tariffs continue, the revenues of apparel exporters may fall by 6-9 per cent in FY2026, despite support from the Free Trade Agreement (FTA) with the UK and diversion of supplies to other geographies.
The agency also forecasts a decline in operating profit margins to around 7.5 per cent in FY2026 from 10 per cent in FY2025, as weaker operating performance in the second half of the fiscal is expected to reduce operational efficiencies. With lower earnings and higher working capital dependence, credit metrics are also likely to moderate. ICRA also added that India currently holds a modest 6 per cent share in the US apparel import market.
Exporters are expected to work hard to retain their market position, as losing share could make recovery difficult. The impact of tariffs will vary depending on product categories. For some specifications, an immediate shift of US orders to lower-tariffed countries may not be feasible due to differences in manufacturing capabilities and the time needed to build capacities.
In constant currency terms, India’s apparel exports have been largely flat over the past five years, due to subdued demand in key markets and a shift in sourcing to Bangladesh and Vietnam. This has reduced offtake from countries such as the UK and the UAE. However, exports to the US, which account for nearly one-third of India’s total exports, grew by 4.8 per cent in the same period as Indian exporters targeted volume growth in the US market.
The increase in tariff rates by 50 per cent over the baseline, effective from August 27, 2025, is expected to hurt the competitiveness of Indian apparel exporters. While preponement of shipments to the US ahead of the tariff hike boosted exports in recent months, ICRA expects exports to weaken in the second half of FY2026 if the scenario persists.
Competing countries may also hesitate to make fresh investments, given the uncertainty of tariff-related advantages. ICRA also noted that preponement of shipments in H1 FY2026 cushions the revenue impact for the full-year FY2026. Further, implementation of the FTA with the UK and diversion of supplies to other geographies is expected to support revenues in FY2027.
