Indian Apparel Export Sector Outlook Upgraded to ‘Stable’ Following US Tariff Reduction: Report

Mumbai: The outlook for India’s apparel export sector has been upgraded from ‘Negative’ to ‘Stable’ after the United States reduced reciprocal tariffs on Indian goods from 25 per cent to 18 per cent, according to a report released by ratings agency ICRA on Wednesday.

ICRA stated that apparel export revenues are expected to grow by 8–11 per cent in FY27, although shipments are still likely to decline by 3–5 per cent in FY26. The agency attributed the expected recovery in revenues to recent trade discussions between India and the US aimed at easing industry-specific challenges.

The report further noted that operating profit margins in the sector are likely to decline to around 7.7 per cent in FY26 before improving to nearly 9.5 per cent in FY27.

India’s apparel exports were valued at approximately $16 billion in FY25, with the United States accounting for nearly one-third of total shipments.

Jitin Makkar, Senior Vice President and Group Head, Corporate Ratings at ICRA Limited, said that the sharp increase in US tariffs last year significantly impacted export-oriented industries, including textiles, cut and polished diamonds, and leather goods. He added that apparel exporters witnessed margin compression of nearly 200 basis points in recent quarters as companies were forced to offer discounts to US buyers to maintain their market share.

Looking ahead, the report highlighted that reduced US tariffs, along with the anticipated India-European Union free trade agreement and other bilateral trade deals, are expected to support gradual growth in India’s manufacturing exports over the medium term.

The tariff reduction is viewed as a positive development for Indian exporters at a time when global trade conditions remain uncertain. Labour-intensive export sectors such as textiles, diamonds, seafood, and footwear are also expected to benefit through improved landed-cost competitiveness.

However, ICRA emphasised that while the tariff cut provides significant short-term relief, Indian companies are likely to focus on geographical diversification as a long-term strategy to mitigate trade-related risks.

With inputs from IANS