Trump’s steep tariffs are straining India’s textile sector. Does the Budget address this?

How far do the announcements go?

The Budget’s announcements come amid concerns of irreversible damage to the textile sector owing to the US tariffs and missed summer orders. In the absence of the trade deal, Indian exporters have lost nearly $2 billion worth of textile orders that are typically placed beforehand in December and January. 

However, government officials have maintained that any kind of measure may not be enough to tackle steep US tariffs. Competing economies with much lower US tariffs, such as Bangladesh and Vietnam, have begun receiving orders that Indian exporters are missing out on. 

The US is the single-largest market for India’s textile and apparel exports. At nearly $11 billion, India’s exports of textile and apparel items to the US accounted for close to 28% of the country’s total exports of these products in the financial year 2024-25.

In January, Tamil Nadu Finance Minister Thangam Thennarasu flagged the state’s exposure to global trade disruptions, warning that recent US tariff hikes had had an outsized effect on the state’s export-driven economy.

Textiles, in particular, were under strain. “As Tamil Nadu accounts for 28% of India’s textile exports and provides employment to more than 75 lakh workers, this is a matter of national concern,” he said.

If current conditions persist, “an estimated 30 lakh jobs are at immediate risk, with many MSME units facing closure,” Thennarasu warned. 

He called for a targeted intervention, seeking “a dedicated support package for the textile sector, including measures such as interest subvention, targeted subsidies, export incentives, and appropriate tax relief.”

The measures announced in the Budget do not address the immediate liquidity challenges faced by textile exporters to the US. They have been asking the government to share at least 25% of the tariff burden to maintain their presence in the US market.

Indian apparel exporters said in a letter to Vice President C P Radhakrishnan last month that sustained US tariffs in the absence of a trade deal could cause permanent damage to India’s market share, resulting in job losses, as there is no further shock-absorption capacity left.

“Recent US actions imposing 25 per cent tariffs and an additional 25 per cent oil-related penalty on imports are causing severe disruption to India’s textile exports, particularly to the US, India’s largest single export market. Without immediate resolution, the sector faces order stoppages, job losses, and permanent loss of market share,” Apparel Export Promotion Council (AEPC) said.

Two tariff scenarios

Sustained 50% US tariffs could have long-term impact on the labour-intensive textile sector. This will result in a $6.6 billion or a 67.8% fall in US import demand for Indian textile and apparel (T&A), an Indian Institute of Foreign Trade (IIFT) research report authored by Professor Sunitha Raju said. 

“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 US$5.7 billion or an 85 per cent fall in the T&A exports to the US,” the report said.

Even in a scenario where the additional 25% tariff for buying Russian oil is rolled back, the negative demand effect is about $2.1 billion, translating into a 21.6% fall in imports across product groups, according to the IIFT report. 

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% fall in the import demand.