The 50% US tariffs coming into effect from Wednesday are expected to nearly halve the revenue growth of India’s readymade garments (RMG) industry to 3–5% this fiscal year, as some manufacturers derive up to 40% of their revenue from the US. Profitability could also take a hit, with margins shrinking by 300–500 basis points, according to a report by Crisil Ratings.
Crisil’s analysis of over 120 RMG makers with combined revenue of Rs. 45,000 crore (US $ 5.4 billion) highlighted that steady domestic demand remains the sector’s only significant cushion.
RMG exports stood at US $ 16 billion last fiscal, accounting for 27% of total sector revenue, with one-third of that coming from the US. The 50% tariff, however, places Indian exporters at a disadvantage compared to rivals in China, Bangladesh and Vietnam, which face lower duties even under Washington’s reciprocal tariff regime.
Manish Gupta, deputy chief rating officer at Crisil, noted that if the tariffs persist, exports to the US will likely see a sharp decline. He explained that in the first quarter of this fiscal, overall exports rose 10% year-on-year to US $ 4 billion, while shipments to the US grew 14%. Gupta further observed that after the 50% tariff, India’s exports to the US could become minimal, despite limited capacity among competing nations and the long lead times required by US retailers to shift sourcing. As a result, he projected the share of the US in India’s RMG exports would drop from 33% last year to 20–25% this fiscal.
Exporters are expected to reorient trade towards the European Union, the UK and the UAE, which together account for 45% of India’s RMG exports. The recently signed free trade agreement (FTA) with the UK could also support higher exports towards the end of this fiscal.
Gautam Shahi, director at Crisil, said the domestic market, which makes up three-fourths of the sector’s revenue, would likely maintain steady growth of 8–10% this fiscal, supported by economic expansion, interest rate cuts and upcoming GST reductions. This, he explained, would cushion the impact of tariffs and help sustain overall growth, albeit at a slower pace than last year.
Crisil’s report added that weaker export revenue and competitive disadvantages in the US would pressure profitability, which may decline 50–150 basis points this fiscal. Exporters’ credit metrics could also weaken, with interest coverage expected to slip to 3.5–3.7 times from 3.9 times last year and financial leverage rising to 3.0–3.1 times from 2.78 times.
