India Apparel Exports May Shrink 6-9% In FY26 Due To US Tariff Hike: ICRA
India’s apparel exports are set to decline by 6-9% in FY26, with credit rating agency ICRA revising the industry outlook to Negative from Stable, citing the steep hike in US tariffs and pricing pressures.
ICRA expects exporters’ operating profit margins to contract by 200-300 basis points, slipping to around 7.5% in FY26 from 10% in FY25, as order inflows slow and volume-led efficiencies weaken. Entities with higher US exposure are likely to be the hardest hit.
US, which accounts for a third of India’s apparel exports, raised tariff rates by 50% from August 27, 2025. While a pre-shipment rush lifted exports in recent months, ICRA warned of weaker performance in H2 FY26 if the tariff regime continues.
“The imposition of steep tariffs is a material setback for domestic apparel exporters,” said Srikumar K, Senior VP, ICRA. “New order inflows are likely to be hit and margin pressures are imminent.”
India’s share in US apparel imports is modest at 6%, making market recovery difficult if share is lost. While the FTA with the UK and diversion to alternative geographies may cushion some impact in FY27, ICRA sees margins and credit metrics under pressure in the near term.
Exporters may resort to discounts to preserve market share, even as they gain temporary relief from a weaker US dollar and duty exemptions on cotton imports till December 2025.
