Due to the benefits of the China Plus One vendor strategy and the retailer-level inventory liquidation, India’s garment exports saw a resurgence in the current fiscal year, according to the latest report from ICRA.
From April to January 2025, Indian apparel exports increased by 11.6 per cent, and they are predicted to continue growing in the medium run. However, difficulties still exist due to inflationary pressures, slow economic development in important end markets, and ambiguity surrounding US trade penalties.
According to estimates, the worldwide apparel trade remained steady in CY 2024, with imports from the US and EU areas accounting for about 55 per cent of the global garment trade and improving by about 2 per cent year over year in 11M CY 2024. This comes after the global apparel trade shrank by almost 7 per cent year over year to US $ 520 billion in CY 2023 due to inflationary pressures and consumer and store destocking.
Due to retailer-level inventory liquidation and the advantages of the China Plus One approach, Indian clothing exports increased by 11.6 per cent YoY in 10M FY 2025 after declining 10 per cent YoY to US $ 14.5 billion in FY 2024. With around 34 per cent and 31 per cent of the market share, respectively, in 10M FY 2025, the US and the EU (including the UK) remain the top destinations for Indian garment exporters.
Indian clothing exports to the US grew 13.8 per cent year over year and 11.0 per cent year over year to the EU region (including the UK) in 9M FY 2025, after a decline in FY 2024 due to a resurgence in demand sentiments, the China Plus One vendor strategy, and geopolitical conflict in Bangladesh. Furthermore, exports in INR terms increased by an extra 160 basis points in the 9M FY 2025 as a result of the rupee’s weakness versus the dollar.
With rising volumes and realisations, ICRA projects that industry revenues would increase by 12–14 per cent in FY 2025 and by 9–11 per cent in FY 2026 (not including the effect of some businesses’ inorganic acquisitions). The advantages of the China Plus One vendor strategy and enhancements brought about by importers’ inventory liquidation are what promoted this growth. However, it is anticipated that operating margins will decline by 50–75 basis points due to increases in labour and inflation in other operating costs.
Cash outflows increased in FY 2024 as a result of several of the companies in ICRA’s sample set’s continuous inorganic expansions and significant debt-funded capital expenditures. Based on an estimate of demand resurgence, this trend is anticipated to continue in FY 2025. Furthermore, ICRA anticipates that capital expenditures would continue to be high in FY 2025 and FY 2026, with an estimated 5-8 per cent of turnover, given that Bangladesh is expected to leave its LDC classification in 1.5 years and that sector players are implementing strategies to capitalise on the China Plus One movement.
