US Tariff Cut Brings Relief To Exporters; Apparel Outlook Stable, Diamonds Remain Under Pressure: ICRA

New Delhi, Feb 11 (KNN) Rating agency ICRA has said the reduction in US reciprocal tariffs on Indian goods to 18 per cent fr0m 25 per cent provides relief to exporters amid a volatile global trade environment.

The agency described the move as a ‘relatively smooth landing’ after elevated duties in 2025 had affected margins and volumes. Labour-intensive sectors such as textiles, cut and polished diamonds, seafood and footwear are expected to benefit fr0m improved cost competitiveness in the US market.

However, ICRA cautioned that gains in export volumes and margins may take time, depending on the pace of contract renegotiations and demand conditions. 

The recent US-India joint statement also indicated that, subject to an interim agreement, tariffs on select Indian goods—including generic pharmaceuticals, gems and diamonds, and aircraft parts—would be removed. The 25 per cent ad valorem duty imposed in August 2025 on certain Indian imports has already been withdrawn.

Apparel Outlook Restored to Stable

ICRA has revised its outlook on the Indian apparel export sector to Stable fr0m Negative. India’s apparel exports stood at around USD 16 billion in FY2025, with the US accounting for nearly one-third of shipments and offering relatively better profitability.

Jitin Makkar, Senior VP and Group Head – Corporate Ratings, ICRA Limited, said, “The sharp increase in US tariffs last year had been particularly debilitating for export-oriented companies in sectors such as textiles, cut and polished diamonds, and leather and leather products.” 

“Apparel exporters, for instance, saw their margins compress by nearly 200 basis points over the past couple of quarters as they were compelled to extend discounts to US buyers to retain volume share. Likewise, polished diamond exporters sought to minimise tariff-related frictions by reorganising their supply chains to reach US buyers while compromising their working capital cycles, with shipment timelines lengthening by around 30 days,” he added.

With tariffs now lowered, ICRA expects apparel export revenues to decline by a narrower 3–5 per cent in FY2026, compared to earlier projections of a sharper fall. Revenues are forecast to rebound by 8–11 per cent in FY2027.

Operating profit margins, estimated to decline to around 7.7 per cent in FY2026, are projected to recover to about 9.5 per cent in FY2027.

Diamonds Sector Remains Under Pressure

ICRA has retained a Negative outlook on the cut and polished diamonds sector, citing structural challenges fr0m the rising acceptance of lab-grown diamonds, which have affected volumes and prices of natural diamonds.

Exports, which peaked at USD 24 billion in FY2022, are projected at about USD 12 billion in FY2026, with average realisations falling to around USD 725 per carat in the first nine months of FY2026. 

A modest recovery of 6–8 per cent is expected in FY2027, supported by tariff relief and improved restocking, though exports are likely to remain well below peak levels.

Focus on Diversification

While the tariff cut offers near-term relief, ICRA said exporters may increasingly pursue geographical diversification and overseas partnerships to reduce exposure to trade-related risks over the long term.

(KNN Bureau)