The Indian textile and apparel sector entered a high-stakes transition on January 1, 2026, as the European Union (EU) formally suspended Generalised Scheme of Preferences (GSP) benefits for 87 per cent of Indian exports. This graduation triggers a shift to full Most Favored Nation (MFN) tariffs, effectively raising duties on apparel from a preferential 9.6 per cent to a standard 12 per cent. Global Trade Research Initiative (GTRI) data suggests, this 2.4 per cent margin hit is critical in a sector where net profits often hover between 3-5 per cent. Unlike competitors such as Bangladesh and Vietnam - which retain duty-free access via ‘Everything But Arms’ status or specialized FTAs - Indian manufacturers must now navigate a widening price gap of approximately 10-12 per cent in the European market.
The convergence of trade barriers
The timing of the GSP withdrawal creates a ‘double-jeopardy’ scenario for the industry. It coincides with the definitive tax phase of the EU’s Carbon Border Adjustment Mechanism (CBAM), introducing new compliance costs even as direct tariffs rise. While high-level negotiations for an India-EU Free Trade Agreement (FTA) are slated for a decisive breakthrough at the January 27 Summit in New Delhi, the legal ratification process implies a minimum 12-to-18-month lag before relief is realized. Exporters are currently caught in a transition valley, notes Ajay Srivastava, Trade Analyst. Until the FTA is operational, Indian garment houses face immediate pressure to either absorb these costs or risk losing shelf space to regionally more competitive suppliers.
India’s textile industry is the nation’s second-largest employer, contributing 2.3 per cent to GDP with an annual export value exceeding $34 billion. The EU remains its largest destination, accounting for nearly 17 per cent of total shipments. Current growth targets aim for $100 billion in exports by 2030, supported by the PLI 2.0 scheme.
