Negotiations between Indian apparel manufacturers and US importers have stalled for summer apparel orders, worth around $2 billion for Indian exporters. This comes amid uncertainty among domestic suppliers about the tariff rates that would apply once the India-US trade deal is concluded. The joint statement released by the two countries in February this year had said that a deal would be reached by fall.
The absence of a trade deal would push the bulk summer orders to competitors such as Bangladesh, Vietnam and even China, which face lower tariffs compared to the highest tariffs of 50 per cent imposed on India. Industry sources said that orders are already shifting to other countries, and missing the summer orders could have a long-term impact.
“Even if we are informed that the additional oil-related tariffs of 25 per cent could be removed since the energy-related issues seem to be getting resolved, we will be able to move forward with our order-related negotiations. And if the deal is not happening, we can completely focus on other markets. But the uncertainty cuts both ways,” an industry source said, on the condition of anonymity.
The stalled negotiations between Indian exporters and the US importers assume significance as India exported $10.3 billion of textiles and apparel (T&A) to the US in 2024. The share of T&A in India’s world exports was 8.21 per cent in FY24. The supply chain of apparel and textiles is largely domestic, as about 90 per cent of the inputs are sourced domestically, indicating the labour-intensive nature of the sectors.
Unlike other products, apparel and textile products are not finding markets elsewhere, as per the trade data released by the Ministry of Commerce and Industry for September. While high-margin products such as electric machinery and auto components are being absorbed by other countries, ready-made garments, particularly cotton-based, declined over 6 per cent in September.
However, the government has taken steps to aid the sector by easing duty on key raw materials, revoking several quality control orders impacting the textile supply chain and by addressing the MSMEs’ access to input material.
A 50 per cent tariff on India will result in $6.6 billion or a 67.8 per cent fall in US import demand for Indian T&A, according to an Indian Institute of Foreign Trade (IIFT) research report authored by Professor Sunitha Raju.
“This negative effect is highest for fibre (-95.8 per cent), followed by yarn (-87.5 per cent) and fabrics (-82.9 per cent). However, in absolute values, made-ups and apparel account for $5.7 billion or an 85 per cent fall in the T&A exports to the US,” the report said.
India’s tariff being higher relative to the competitors, China, Vietnam and Bangladesh will have significant market share gains for apparel and Pakistan, Mexico and China for made-ups. Thus, these tariff differentials are adversely influencing the competitive landscape in the US market, it said
With a 25 per cent tariff, the negative demand effect is about $2.1 billion, translating into a 21.6 per cent fall in imports across product groups. In absolute terms, the fall in import demand is highest for made-ups ($921 million), followed by apparel ($788 million), as these two product groups account for an 81 per cent fall in the import demand.
Domestic focus to blunt indirect impact
According to the report, even though small firms co-exist with large firms in the textile industry, exports are dominated by large firms. However, the US tariff shock impacts all producers in the industry and is transmitted through many domestic suppliers. With nearly 70 per cent of sectoral value derived from intermediate inputs first-order indirect effects are substantial, totalling $ 4.6 billion, including $ 1.4 billion within the textile sector.
“As only 24 per cent of the textile production is exported and 76 per cent caters to the domestic demand in India, the indirect effect is muted… As retailing has a high fixed cost, e-commerce has facilitated the growing B2C relationships. While the tariff shock may not affect the domestic B2C costs, it will hurt exports. As this platform facilitates small producers to export, adverse action by these big retailers will impact the small producers and exporters,” the report said.
