Rating agency ICRA has revised its outlook for India's apparel export industry from ‘Stable’ to ‘Negative,’ citing the recent increase in US tariff rates as a major factor that will significantly impact export revenues in the upcoming fiscal year.
According to the agency, the higher tariffs are projected to cause a 6-9 per cent decline in revenue for Indian apparel exporters in FY2026. This is expected to occur despite potential support from the Free Trade Agreement (FTA) with the UK and attempts by exporters to redirect their supplies to other international markets. The agency also forecasts a contraction in operating profit margins, which are expected to drop to approximately 7.5 per cent in FY2026 from 10 per cent in the prior fiscal year. This decline is largely attributed to weaker performance in the second half of the year, which is likely to reduce overall operational efficiency.
Currently accounting for a modest 6 per cent of apparel imports, the US is a crucial market for Indian exporters, representing nearly one-third of their total apparel exports. The recent 50 per cent tariff rate increase poses a substantial challenge to the competitiveness of Indian products. While exporters advanced shipments ahead of the tariff hike, providing a temporary boost to exports in H1, FY2026, the long-term impact remains a serious concern.
ICRA's report highlights that Indian exporters may struggle to maintain their market share in a highly competitive global environment. The impact will also vary across different product categories, as an immediate shift of US orders to lower-tariffed countries may not be feasible due to differences in manufacturing capabilities and the time required to build new capacities.
Additionally, the uncertainty surrounding these tariffs may cause hesitation among competing countries to make new investments, further intensifying the challenges for Indian exporters. Lower earnings and a greater reliance on working capital are also expected to moderate the credit metrics for the industry as a whole.
