The outlook for India’s apparel export sector has been downgraded from ‘Stable’ to ‘Negative’ by credit rating agency ICRA, following the recent upward revision in United States tariff rates. The move is expected to weigh on export revenues in the coming fiscal year.
According to ICRA, lower export volumes and pricing pressures are likely to contract industry operating margins by 200–300 basis points in FY 2026, with a steeper impact on businesses more heavily dependent on the US market. The agency projected a 6–9% decline in apparel export revenues in FY2026 if tariffs remain in place, despite partial support from the UK Free Trade Agreement (FTA) and a diversion of shipments to alternative destinations.
Operating profit margins are forecast to fall to around 7.5% from 10% in FY 2025, reflecting weaker performance in the second half of the year and reduced operational efficiency.
India currently accounts for about 6% of the US apparel import market. The US, which makes up close to one-third of India’s total apparel exports, had recorded 4.8% growth in imports from India over the past five years, even as the country’s overall apparel exports remained subdued. Competition from Bangladesh and Vietnam has also eroded India’s global market share.
The 50% increase in US tariff rates, which came into effect on 27 August, is expected to affect the cost competitiveness of Indian exporters. While a preponement of shipments ahead of the tariff hike has helped cushion revenues in the first half of FY2026, ICRA noted that tariff pressure will likely intensify thereafter. The agency also cautioned that lower earnings and higher working capital requirements could weaken the credit metrics of apparel exporters.
Bharat Tex Special Report 2026 
