ICRA: New US Tariffs Will Shrink India's Apparel Export Revenue by 6–9% in FY26

New Delhi, Sep 9 (KNN) Rating agency ICRA has revised its outlook for the Indian apparel export sector to Negative from Stable, following the United States’ decision to raise tariff rates on Indian apparel. 

The move is expected to adversely affect India’s overall apparel exports, with revenues likely to decline in the coming fiscal year.

In a statement on Monday, ICRA, as quoted by ANI, noted that "lower exports and pressure on pricing are expected to contract industry operating margins by 200-300 basis points in FY2026, with the impact potentially steeper for entities heavily concentrated in the US market." 

The agency projected that, if the recently imposed tariffs persist, revenues for apparel exporters may fall by 6-9 percent in FY2026, despite some mitigation from the Free Trade Agreement (FTA) with the UK and the potential diversion of supplies to alternative markets.

ICRA further forecast a decline in operating profit margins to approximately 7.5 percent in FY2026, down from 10 percent in FY2025, attributing the contraction to weaker operating performance in the second half of the fiscal, which could reduce operational efficiencies. 

Lower earnings combined with higher working capital dependence are also likely to moderate credit metrics for exporters.

Currently, India accounts for a modest 6 percent share of the US apparel import market. ICRA observed that exporters will need to work actively to maintain market position, as any loss of share could impede recovery. 

The impact of tariffs is expected to vary across product categories, with some specifications less amenable to immediate diversion to lower-tariff countries due to differences in manufacturing capabilities and the lead time required to build new capacities.

Over the past five years, India’s apparel exports in constant currency terms have remained largely flat, affected by subdued demand in key markets and a shift in sourcing to countries such as Bangladesh and Vietnam. 

This trend has reduced offtake from destinations including the UK and the UAE. Exports to the US, which account for nearly one-third of India’s total apparel exports, grew by 4.8 percent during the same period as exporters focused on volume expansion in that market.

The recent US tariff increase, raising rates by 50 percent over the baseline effective August 27, 2025, is expected to undermine the competitiveness of Indian apparel exporters. 

While preponement of shipments ahead of the tariff hike boosted exports in the first half of FY2026, ICRA expects export performance to weaken in the latter half if the tariff scenario continues. 

Competing countries may also remain cautious about fresh investments amid the uncertainty surrounding tariff-related advantages.

ICRA highlighted that the preponement of shipments in H1 FY2026 partially cushions the revenue impact for the full year. 

Additionally, implementation of the FTA with the UK and the strategic diversion of supplies to other geographies are expected to support revenues in FY2027.

(KNN Bureau)