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India’s readymade garment (RMG) industry is staring at a major setback, with revenue growth projected to slow to 3–5% in FY26 — nearly half of last year’s pace — following the United States’ imposition of a 50% tariff on Indian garment imports starting today.
According to a Crisil Ratings report, the steep tariff threatens to significantly reduce export volumes, erode profitability, and strain credit metrics across the sector. The impact will be most severe for companies with high exposure to the US, which accounted for one-third of India’s $16 billion RMG exports last year. For some manufacturers, exports to the US form over 40% of their revenues.
“If the 50% tariff holds, Indian exports to the US may fall sharply,” said Manish Gupta, Deputy Chief Rating Officer, Crisil Ratings. “While exports to the US grew 14% year-on-year in Q1 FY26, this momentum is unlikely to continue post-tariff.”
The US’s share in India’s garment exports is now expected to fall to 20–25% this fiscal, down from 33% in FY25. Competing countries like Bangladesh, Vietnam, and China, which enjoy more favorable trade terms, are likely to gain ground.
To mitigate the fallout, exporters are expected to pivot to alternative markets. The EU, UK, and UAE — which together contributed 45% of RMG exports last fiscal — are set to become more important. A recently signed India-UK Free Trade Agreement, expected to take effect by year-end, may offer a fresh boost.
On the domestic front, which generates nearly 75% of sectoral revenue, steady growth of 8–10% is anticipated this year, supported by improving macroeconomic conditions and consumer demand.
Still, profitability is under pressure. Exporters may face margin erosion of 300–500 basis points, while overall sector margins could shrink by 50–150 basis points. Oversupply risks in the domestic market may intensify competition and pricing pressure.
Credit metrics are also expected to weaken. Interest coverage ratios could dip to 3.5–3.7 times, from 3.9 last year, while financial leverage may rise to 3–3.1 times.
While a possible reduction in tariffs to 25% could ease the blow, uncertainties remain. The next few quarters will be crucial as Indian RMG players look to diversify, adapt, and sustain growth amid a shifting global trade landscape.
(Source: IANS)
