The United States has reduced its tariffs on Indian apparel exports to 18% from the elevated levels seen in 2025, a move that's being hailed as a significant boost for the labor-intensive Indian export sector. Rating agency ICRA anticipates this tariff reduction will improve the landed-cost competitiveness of Indian exports, including textiles, cut and polished diamonds, seafood, and footwear. The revised tariff is expected to provide immediate relief to exporters and foster a more stable trade environment.
The US accounted for approximately one-third of India's $16 billion apparel exports in FY25, making it a crucial market for Indian exporters due to its large contribution to revenue and higher profitability compared to other markets. The previous higher tariff rates had led ICRA to project a decline in India's apparel exports. However, with the new tariff structure in place, revenues are projected to rebound in FY27, registering an 8-11% growth.
Operating profit margins (OPM) for apparel exporters, which were expected to compress by approximately 200 bps to around 7.7% in FY26, are now likely to recover to around 9.5% in FY27. This expected recovery has prompted ICRA to restore a 'Stable' outlook for the Indian apparel export sector. In contrast, ICRA maintains a 'Negative' outlook on the cut and polished diamonds sector, despite the prospect of tariff removal upon the conclusion of the Interim Agreement between India and the US.
The reduction in tariffs is a result of recent trade discussions and a joint statement between the US and India. The additional ad valorem duty of 25% on Indian imports, initially introduced in August 2025, has also been eliminated following an Executive Order by the US President. Furthermore, reciprocal tariffs imposed by the US on select Indian goods, including generic pharmaceuticals, gems and diamonds, and aircraft parts, are expected to be removed, subject to the conclusion of the Interim Agreement.
The tariff reduction has sparked positive sentiment among Indian textile companies, with many experiencing a surge in stock values. Companies with significant exposure to the US market, efficient operations, and a focus on value-added products are expected to benefit the most from this development. The new 18% tariff rate places India in a favorable position compared to other Asian countries like Bangladesh and Vietnam, which face effective tariff rates of around 20%, and China, with tariffs between 30-35%. This competitive edge is expected to help India regain market share in the US textile import market.
Industry experts anticipate double-digit month-on-month growth in apparel and home textile exports from FY27, potentially increasing the monthly run rate to $1.5-$1.6 billion. While the benefits may take several months to materialize due to contract renegotiations, the tariff reduction is expected to restore competitiveness and revive order volumes for Indian exporters. The India-EU Free Trade Agreement, once in place by 2027, is expected to further boost textile exports to the EU with NIL tariff rates, compared to the current 12%.