In a move to boost bilateral trade relations with the US, India is contemplating significant tariff reductions on labor-intensive sectors, including gems and jewellery, automobile parts, and textiles. This initiative aligns with the ‘Mission 500’ goal that seeks to double bilateral trade to $500 billion by 2030.

As per Indian government sources, the easing of tariffs would be reciprocated by the US, likely targeting reductions on its industrial goods exports to India. "The focus is on sectors that are highly dependent on manpower for production, which includes engineering goods," stated a government official familiar with the negotiations.

Gains for textile sector

India currently imposes varying customs duties on exports crucial to these sectors: gold and silver, essential for gems and jewellery, face a 6 per cent tariff, while engineering goods encounter duties ranging from 7.5 per cent to 10 per cent. Ready-made garments, a significant segment of the textile industry, are subject to tariffs as high as 20 per cent, or a combination there of.

Recent bilateral merchandise trade figures underscore the importance of these sectors in India's export landscape. From April to November 2024 alone, India exported $59.93 billion worth of goods to the US, with engineering goods leading at nearly $14 billion, followed by gems and jewellery at approximately $7 billion, and ready-made garments at $3.8 billion.

The textile and apparel sector, a significant employer in India, stands to gain substantially from reduced tariffs. Currently, Indian ready-made garments face either a 20 per cent tariff or a complex mix of duties in the US market. The proposed trade deal could provide a crucial competitive edge, enabling Indian manufacturers to expand their market share.

While specifics of the tariff adjustments are still being finalized, the Finance Ministry has already initiated steps to rationalize customs duties, a move expected to benefit American exports significantly. This aligns with broader goals set during Prime Minister Narendra Modi's recent visit to the US, where pledges were made to deepen economic ties and streamline supply chain integration.

Table: Indian Exports to the US (April-Nov 2024)

Table: Tariff overview on key Indian exports

In addition to goods, discussions have also touched upon increasing trade in agricultural products, although details on tariff reductions in this sector are yet to be determined.

The forthcoming negotiations are anticipated to pave the way for a more integrated trade framework between India and the US, leveraging mutual strengths in manufacturing and consumption. As both nations prepare to embark on this ambitious trade pact, stakeholders in the textile and apparel sectors are cautiously optimistic about the potential for expanded market access and reduced trade barriers.

Benefits for textile sector

The proposed Bilateral Trade Agreement (BTA), with a focus on tariff reductions, presents a significant opportunity for the Indian textile and apparel sector. Tariff reductions will lead to increased export volumes to the US. It will also lead to higher competitiveness against other exporting nations. Job creation within India's textile and apparel industry will rise and the policy move will also attract foreign investment in the sector while strengthening of the textile and apparel supply chain.

However, the final contours of the deal, including specific tariff lines and concessions, are yet to be determined. Both India and the US have pledged to finalize the first tranche of the BTA by fall 2025. As negotiations progress, the textile and apparel industry will be closely monitoring developments, anticipating a favorable outcome that can drive growth and create new opportunities.