US tariff blow: India's readymade garments industry faces tough fiscal, says Crisil report; warns growth may slow to 3-5%

India’s readymade garment industry is bracing for a tough fiscal ahead, with revenue growth forecast to slow to just 3-5% over the period, nearly half the pace seen last year.

This slowdown hurt credit indicators for industry players and led to weaker profitability, according to a recent report by Crisil Ratings.


The report, based on an analysis of over 120 RMG makers with combined revenues of Rs 45,000 crore, highlighted that the impact will not be uniform. Companies that earn more than 40% of their revenue from the US are expected to be hit hardest, the report predicted, as cited by ANI.

Last fiscal, India’s RMG exports stood at $16 billion, accounting for 27% of the sector’s revenue, with a third of shipments going to the US. However, a 50% tariff has placed India at a serious disadvantage compared with rivals like China, Bangladesh and Vietnam.

Manish Gupta, deputy chief rating officer, Crisil Ratings, said, "If the tariffs hold, RMG exports to the US will see a sharp decline. In the first quarter of this fiscal, total exports from India rose 10% on-year to USD 4 billion, with exports to US recording a 14% growth during the same period. The trend is expected to sustain through 26th August till the enhanced tariffs kick in. Post 50% tariffs, Indian exports to the US may be minimal, despite the limited capacity of competing nations in value-added garments and the lead time taken by big-box retailers in the US to re-align their sourcing arrangements. Overall, we expect the share of the US in India's RMG exports to fall from 33% last fiscal to 20-25% this fiscal."

To cope with the US setback, exporters are expected to refocus on other major markets such as the European Union, United Kingdom and United Arab Emirates, which together account for 45% of India’s exports in fiscal 2025.

The recently signed Free Trade Agreement (FTA) with the UK could also lift shipments towards the end of this fiscal, offering some respite, ANI reported.

On the domestic front, there is a more positive outlook. Gautam Shahi, director, Crisil Ratings, said, "The domestic market for RMG, accounting for three-fourths of the sector's revenue, will continue to see steady revenue growth of 8-10% this fiscal, fuelled by economic growth, interest rate cuts, and tax reductions. This, in turn, will cushion the tariff blow and spur overall growth at the sector level, but at a slower pace than last fiscal."

Still, the pressure on profitability is unavoidable. Exporters heavily dependent on the US could see margins shrink by 300-500 basis points as they absorb the tariff impact. At the broader industry level, profitability could dip by 50-150 basis points this fiscal, with oversupply in the domestic market also weighing on margins.

Crisil warned that several external factors remain critical to the industry’s performance, including the continuation of higher tariffs on India compared with competitors, demand conditions in the US amid inflationary pressures, and the possibility of a sharper-than-expected rise in cotton prices.

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