India Strategy to Counter the US Tariff Blow on Garment Exports
Why in News?
The United States has imposed significantly higher tariffs on imports of Indian garments — raising the existing duty from around 8.5% to a hefty 25%. The revised tariff structure comes into effect from August 1. This sudden hike poses a serious challenge to India’s textile and apparel industry, which has already witnessed stagnation over the past decade with garment exports hovering between USD 16 to 18 billion.
However, industry experts believe that the potential damage from this tariff shock can be offset — and possibly even reversed — if India adopts a strategic and multi-pronged approach involving trade negotiations, cost competitiveness, and structural reforms.
Introduction
The Indian apparel industry is one of the most labour-intensive and export-oriented sectors in the country. With over 45 million people directly employed and more than 100 million dependent on it indirectly, the textile and apparel sector plays a vital role in generating employment and driving economic growth, especially in rural and semi-urban areas.
India’s garment exports have been consistently reliant on the US market, which accounts for approximately one-third of total apparel shipments. In the fiscal year 2023-24, India exported garments worth around USD 10.5 billion to the US alone. This makes the American market an irreplaceable component of India’s apparel export portfolio.
The sudden increase in tariffs by the US from 8.5% to 25% presents a major competitive setback. India now finds itself at a relative disadvantage against countries such as Bangladesh and Vietnam, which either enjoy duty-free access (in case of Bangladesh through LDC status) or have negotiated favourable trade agreements (like Vietnam’s FTAs with the EU and other markets).
Key Issues
1. Loss of Competitiveness in the US Market
The tariff hike makes Indian garments significantly more expensive in the US market compared to products from competing countries. While Indian exporters now face a 25% tariff, Bangladesh enjoys zero duty due to its status as a Least Developed Country. This differential could result in US buyers shifting orders to cheaper sources, pushing Indian manufacturers to the sidelines.
2. Structural Weaknesses in the Garment Sector
Despite being the second-largest producer of textiles globally, India’s garment exports have remained stagnant at USD 16–18 billion for the last ten years. This stagnation reflects deeper systemic issues such as:
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Higher input costs (cotton, dyes, chemicals)
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Low productivity in small-scale units
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Complex labour regulations
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Lack of global scale in manufacturing
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Inadequate branding and design innovation
3. Fragmented Supply Chain and Input Costs
India’s textile value chain is fragmented and marked by inefficiencies. Many small and medium enterprises struggle with logistics, high input prices, and regulatory compliance. Cotton prices — a major input — remain volatile and often higher than international levels, impacting cost competitiveness. The lack of economies of scale makes it harder for Indian exporters to absorb external shocks like tariff hikes.
Alternative Approaches
Despite these challenges, experts believe that the impact of the US tariff hike can be effectively neutralised — and even converted into an opportunity — through a threefold strategy:
1. Trade Negotiations and FTAs
India must aggressively pursue trade negotiations with key partners. The Comprehensive Economic Partnership Agreement (CEPA) with the UAE and FTAs with Australia and the EU are steps in the right direction. India should also engage with the US to seek duty concessions or a possible apparel-specific bilateral deal.
In the medium term, securing FTAs with markets like the UK, EU, and Canada can open alternative export destinations and reduce over-dependence on the US market.
2. Input Cost Rationalisation
Cotton is the backbone of India’s apparel sector, especially in export-heavy states like Tamil Nadu, Maharashtra, and Gujarat. A focused cotton policy to stabilise prices and ensure quality can significantly improve cost competitiveness.
Additionally, streamlining the GST structure for MMF (man-made fibre) and removing anomalies in duty drawback rates can provide exporters with a level playing field against regional competitors.
3. Sectoral Policy Reform
India needs a new, targeted garment sector policy with an emphasis on:
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Labour flexibility with social protection
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Scaling up manufacturing units
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Investing in technology and automation
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Incentivising value-added design and branding
The Production Linked Incentive (PLI) scheme for textiles is a welcome initiative. However, its current focus is skewed towards MMF and technical textiles. A more inclusive and broad-based support structure is essential to revive traditional garment clusters and MSMEs.
Challenges and the Way Forward
While the three-pronged strategy holds potential, implementation hurdles remain.
a. Trade Deal Complexity
Negotiating FTAs is a complex and time-consuming process. The textile sector must be proactive in working with the government to ensure that apparel gets priority in negotiations. Delay in execution could cost India its current position in global supply chains.
b. Cotton Supply Chain Issues
Cotton productivity in India is among the lowest in the world. Over-reliance on rain-fed farming, poor seed quality, and price uncertainty deter farmers. There is an urgent need for investment in cotton R&D, extension services, and a stable Minimum Support Price (MSP) regime.
c. Low Investment in Modernisation
Many garment units still operate with outdated machinery and processes. Lack of access to capital, high energy costs, and limited support for innovation hamper the sector’s ability to scale up. State-level reforms, skill development programs, and credit-linked capital subsidies are necessary to bridge this gap.
d. Global Market Disruption
The global apparel market is undergoing structural changes — from shifting supply chains post-COVID to consumer demand for sustainability and ethical sourcing. India must align its export strategies with these trends to remain relevant.
Conclusion
The sudden spike in US tariffs on Indian garments is undoubtedly a serious challenge. However, it also presents an opportunity for India to re-strategise, reform, and reposition its apparel sector in global markets.
Rather than relying solely on tariff concessions, India must focus on enhancing internal competitiveness — through trade agreements, rational cost structures, and deep structural reforms.
By investing in quality, innovation, and scale, the Indian apparel industry can not only overcome this temporary hurdle but emerge stronger and more resilient in the face of global competition.
Five Questions and Answers
1. What is the new US tariff on Indian garments, and when does it come into effect?
The US has increased the tariff on Indian garments from around 8.5% to 25%, effective from August 1.
2. Why is this tariff hike a major concern for India?
The US is India’s largest garment export market, accounting for over one-third of exports. The hike reduces India’s competitiveness compared to Bangladesh and Vietnam, who have better trade terms.
3. How can India mitigate the impact of this tariff hike?
India can respond by negotiating favourable trade deals, reducing input costs (especially cotton), and implementing garment-sector specific reforms to boost competitiveness.
4. What are the main challenges facing India’s garment sector?
Challenges include high input costs, fragmented supply chains, outdated machinery, lack of FTAs, and limited innovation in design and branding.
5. What reforms are recommended for long-term growth?
Reforms include a cotton policy for price stability, investment in R&D and technology, better access to finance, labour reforms, and expansion of the PLI scheme to cover traditional garment clusters.
