The outlook for India's apparel export sector has been downgraded from ‘Stable’ to ‘Negative’ by the credit rating agency ICRA, following a significant increase in United States tariff rates. The agency warns that this shift is expected to put a strain on export revenues in the coming fiscal year.
According to ICRA, a combination of lower export volumes and pricing pressures will likely cause industry operating margins to contract by 200–300 basis points in FY2026. Companies that are more dependent on the U.S. market are expected to feel a steeper impact. The agency projects a 6-9 per cent drop in total apparel export revenues for FY2026 if the tariffs remain in effect. This decline is expected despite a partial cushion from the U.K. Free Trade Agreement (FTA) and a potential redirection of some shipments to other destinations.
Operating profit margins are forecast to fall from approximately 10 per cent in FY2025 to around 7.5 per cent, reflecting weaker performance in the latter half of the year and reduced operational efficiency.
The United States is a critical market for India, accounting for nearly one-third of its total apparel exports and holding about a 6 per cent share of the US apparel import market. This comes as Indian exporters are already facing stiff competition from major rivals like Bangladesh and Vietnam, which has eroded India’s global market share.
The 50 per cent increase in US tariff rates, which went into effect on August 27, will directly impact the cost-competitiveness of Indian exporters. While some companies shipped products earlier than planned to get ahead of the tariff hike and boost first-half revenues for FY2026, ICRA cautioned that the full pressure of the tariffs will intensify in the second half of the year. The agency also noted that lower earnings and higher working capital needs could ultimately weaken the credit standing of apparel exporters.
