India’s textile and apparel (T&A) sector entered FY2027 with a striking internal contradiction. While the country’s overall merchandise exports increased 18 per cent year-on-year to cross $45 billion in May 2026, the textile and apparel sector moved in the opposite direction, exposing a growing divide between upstream textile manufacturing and downstream garment production.

Latest Confederation of Indian Textile Industry (CITI) data shows India’s textile base that includes spinning, weaving and value-added fabric production continues to show resilience. Apparel exporters, however, are grappling with tariff disruptions, rising competitive pressures and changing global demand patterns. The result is a sector split between a growing raw-material and intermediate-goods business and a struggling finished-garment segment.

This difference has become significant enough to reshape the contribution of T&A to India’s export basket. In May 2026, the sector’s share of total merchandise exports declined to 6.69 per cent from 8.35 per cent a year earlier, despite the broader export economy recording strong growth.

Textile exports find stability

The textile segment emerged as the brighter spot in May. Total textile exports rose 2.47 per cent year-on-year to $1.73 billion, while cumulative exports for April-May 2026 increased 3.03 per cent to $3.40 billion. A closer look of core textile categories excluding jute and carpets reveals a sector benefiting from steady global demand for fibres, fabrics and artisanal products.

Table: Core textile export performance (excluding jute & carpets)

Cotton-based products remained the backbone of the sector, generating nearly $985 million in exports during May. Even amid domestic debates over cotton availability and import policies, Indian spinning and weaving mills continued to secure overseas orders.

The strongest momentum came from handicrafts excluding handmade carpets. Exports from this category jumped nearly 24 per cent in May and over 25 per cent during the first two months of the fiscal year, underscoring growing international demand for premium, handcrafted and culturally distinctive Indian products. Another notable development was the sharp 43.18 per cent rise in cotton raw and waste imports during May. Rather than indicating weakness, the rise reflects mills importing higher-grade fibre to meet stringent international quality specifications and maintain export competitiveness.

The experience of several spinning units in southern India reveals this shift. Following the reinstatement of Quality Control Orders (QCOs) on certain fibre imports, many manufacturers moved away from low-cost synthetic blends and invested in higher-value cotton-based production. The strategy helped preserve export opportunities in premium markets, particularly Europe, where traceability and sustainability have become critical purchasing criteria.

Apparel faces a perfect storm

The resilience visible in textiles has not extended to ready-made garments. Apparel exports fell 14.17 per cent year-on-year in May 2026 to $1.30 billion. The cumulative picture was equally challenging, with exports declining 12.98 per cent during April-May. Stakeholders attribute the drop to a combination of global trade disruptions and structural competitiveness issues. The US, India’s largest apparel market, remained a major source of pressure. Tariff increases over the past year forced many exporters to absorb part of the additional costs through price reductions, squeezing margins and reducing export earnings even where shipment volumes remained stable.

Europe presented another challenge. The suspension of preferential trade benefits at the start of 2026 increased duties on Indian apparel exports, placing suppliers at a disadvantage against competitors such as Bangladesh, Vietnam and Pakistan that continue to enjoy more favourable market access.

At the same time, India’s product mix remains heavily skewed toward cotton apparel, while global demand increasingly favours synthetic and performance-wear categories. Over 70 per cent of apparel demand in developed markets is now linked to synthetic-based products, yet synthetic-rich products account for less than 40 per cent of India’s apparel export portfolio.

Manufacturers in Tirupur, India’s largest knitwear hub, describe the current environment as one of survival rather than growth. Several exporters have accepted lower prices from overseas buyers to protect order volumes, effectively shipping more garments while earning fewer dollars. Many are now redirecting investments toward compliance upgrades, product diversification and preparation for future free-trade opportunities rather than expanding existing cotton-focused capacities.

Numbers behind the divide

The cumulative April-May data highlights just how sharply the sector has split into two distinct paths.

Table: Understanding the export gap

The data suggests that India has become more efficient at exporting fibres, yarns, fabrics and intermediate products, but faces growing obstacles when converting those materials into finished garments for international consumers.

Looking beyond FY2026

Despite current challenges, the medium-term outlook remains constructive. Industry observers expect apparel exports to stabilise over the course of FY2027 supported by easing tariff pressures and anticipated gains from trade agreements.

The India-European Union free trade agreement could significantly improve the competitiveness of Indian garments in one of the world's largest apparel markets. Industry estimates suggest India's market share in Europe could rise substantially once duty barriers are reduced. Similarly, new trade arrangements with West Asian markets are expected to create fresh opportunities for exporters seeking alternatives to traditional destinations.

For India’s textile and apparel industry, the message from May 2026 is clear. The country has strengthened its position as a reliable supplier of fibres, fabrics and specialised textile products. The next challenge is to translate that strength into higher-value garment exports. Success will depend on expanding synthetic capabilities, upgrading manufacturing technologies and leveraging emerging trade agreements to move further up the global value chain. Until then, India’s textile mills and garment factories will continue to tell two very different export stories.