RMG Revenue Growth To Halve To 3–5% On US Tariff Headwinds

India’s readymade garment (RMG) industry is set to see revenue growth nearly halve to 3–5% this fiscal, weighed down by the imposition of a 50% tariff by the US on imports from India effective August 27, 2025. The tariff shock, coupled with a squeeze in profitability, is expected to weaken credit metrics across the sector. The impact will be sharper for companies deriving over 40% of their revenue from the US.

An analysis by Crisil Ratings of more than 120 rated RMG makers, together accounting for ~Rs 45,000 crore in revenue, indicates as much.

RMG exports stood at ~US$ 16 billion last fiscal, contributing ~27% of the sector’s revenue. One-third of this went to the US. The new tariff places India at a competitive disadvantage compared with China, Bangladesh and Vietnam.

“If the tariffs hold, RMG exports to the US will see a sharp decline,” said Manish Gupta, Deputy Chief Rating Officer, Crisil Ratings. “Exports to the US grew ~14% on-year in Q1 FY26, but post-tariff, shipments could shrink drastically despite limited capacity at competing nations and sourcing lead times for US retailers. We expect the US share in India’s RMG exports to fall from 33% last fiscal to 20–25% this fiscal.”

With the US market shrinking, exporters will need to pivot towards other major destinations such as the European Union, United Kingdom and UAE, which together account for ~45% of India’s RMG exports. The recently signed FTA with the UK is also expected to boost exports there from the end of this fiscal.

On the domestic front, which makes up ~75% of sector revenue, growth is expected to remain steady at 8–10% this fiscal, supported by economic expansion, interest rate cuts and tax reductions. “This will cushion the tariff blow and sustain overall industry growth, albeit at a slower pace than last fiscal,” said Gautam Shahi, Director, Crisil Ratings.

Still, profitability is set to come under pressure. Export-focused players could see margins contract 300–500 basis points, while industry-wide profitability may decline 50–150 bps. An oversupply in the domestic market could further weigh on margins.

Weaker earnings will in turn affect credit metrics. Interest coverage is projected to dip to 3.5–3.7 times this fiscal from 3.9 times last year, while financial leverage may rise to 3–3.1 times from 2.78 times. Companies with high US exposure are likely to see sharper deterioration.

If tariffs were rolled back to 25% as earlier proposed, India could maintain a competitive edge in value-added garments, limiting export losses. Until then, the continuation of steep tariffs, US demand weakness from inflation, and potential cotton price spikes remain key risks for the industry’s operating performance.