Readymade garment revenue to halve in FY26 as US tariff kicks in: Crisil

Crisil warns India's garment sector revenue growth will slow to 3-5% in FY26 as US tariffs rise to 50%, eroding competitiveness against Bangladesh, Vietnam and China

India’s readymade garment industry, one of the country’s biggest job creators and exporters, is bracing for a sharp slowdown this year after Washington announced a 50 per cent tariff on Indian garment imports starting August 27, 2025.

 

According to Crisil Ratings, revenue growth for the sector is likely to fall to just 3-5 per cent this financial year (FY26), almost half the pace of last year.

 

US tariffs to rise to 50 per cent

Initially, tariff rates announced in April by President Donald Trump offered India comparatively favourable terms at 26 per cent. But after tensions over crude imports from Russia, the US revised its stance.

   

Now, India faces a 50 per cent duty, compared with 20 per cent for Bangladesh and Vietnam and 30 per cent for China.

 

The US tariff comprises two components: an initial 25 per cent already in force and an additional 25 per cent as a penalty kicking in on August 27.

 

US tariff hike to weaken India's competitiveness

The duty hike, Crisil noted, will weaken India’s price competitiveness against its Asian peers. The US is India’s single-largest garment market, accounting for around one-third of the $16 billion worth of exports logged in FY24.

 

“If these tariffs persist, shipments to the US will decline substantially,” said Manish Gupta, deputy chief rating officer at Crisil Ratings. The agency expects the US share in India’s garment exports to fall to 20-25 per cent this year from 33 per cent last year.

 

Early gains, but storm ahead

Interestingly, the year had started well. In the first quarter (April-June), India’s garment exports jumped 10 per cent to $4 billion, with shipments to the US up 14 per cent. That momentum is expected to hold until August 26, before the higher duty kicks in.

 

For the seven months from September 2025 to March 2026, though, exports to the US are expected to plunge.

 

Profitability and financial pressure in India's garments sector

Crisil’s analysis, covering more than 120 rated manufacturers with combined revenues of around ₹45,000 crore, shows profitability will come under pressure. Exporters with a heavy dependence on the US could see margins decline by 30-500 basis points, while overall sector profitability may shrink by 50-150 basis points.

 

Interest coverage is projected to weaken from 3.9 times in FY24 to 3.5-3.7 times in the current year, while leverage ratios may rise from 2.78 to 3.0-3.1 times. Companies generating more than 40 per cent of their revenues from the US are expected to face the steepest challenges.

 

Domestic demand to remain resilient

Despite the slowdown in exports, Crisil expects domestic demand, which makes up nearly three-fourths of industry revenues, to remain resilient, growing by 8 to 10 per cent this year. The growth will be supported by a steady economy, lower interest rates and tax concessions, the agency said.

 

“This resilience will soften the blow from tariffs, though overall growth will be slower than last year,” said Gautam Shahi, director at Crisil Ratings.

 

Exporters to seek alternative markets to the US

Exporters have been asked by the government to look beyond the US.

 

The European Union, the UK and the UAE already account for 45 per cent of India’s garment exports, and could see higher volumes this year.

 

The recently concluded UK free trade agreement is also likely to provide a boost in the latter half of FY26.

 

Crisil added that if the US were to roll back tariffs to 25 per cent, Indian exporters could quickly regain competitiveness in value-added apparel.