Value Chain Disconnect: US tariff blow outweighs rupee gains, stranding Indian cotton mills
The Indian textile and apparel sector is passing through a severe mid-cycle shock, as steep, US tariffs overshadow the domestic spinning segment's competitive gains from a depreciating rupee and government-backed cotton procurement. While raw cotton prices remain firm due to central intervention, weak global demand and a sudden, sharp fall in US orders are triggering a severe liquidity crisis in major garmenting hubs like Tiruppur and Mumbai.
A value chain disconnect
Southern India's cotton yarn markets, an important barometer for the domestic industry, is showing muted activity, a clear signal of the disconnect between the fiber and the finished goods segments. Despite the Cotton Corporation of India's (CCI) heavy procurement pushing cotton prices up by Rs 300-Rs 500 per candy, weak rupee is making exports potentially cheaper, the benefit is not cascading down the value chain.
The core problem is the drastic reduction in garmenting activity, particularly for export orders, which outweighs the cost advantages. Latest data from the Confederation of Indian Textile Industry (CITI) indicates a cumulative de-growth of 1.57 per cent in textile and apparel exports during April-October 2025 compared to the previous year. Specifically, cotton yarn, fabrics, and made-ups saw a sharp decline of 13.31 per cent in October 2025, highlighting the immediate pressure on mills. “Buyers are avoiding risk as the trade deal between India and the US is still pending. It is unlikely that market sentiment will improve before December this year. The payment crunch is severely delaying fresh purchases,” says a Mumbai-based trader.
Tariff tsunami and liquidity stress
The major blow comes from the escalation of US import duties on Indian textiles, with total rates on certain products now reaching up to 50 per cent since August 2025. This has crippled the price competitiveness of Indian exports, making them 30-35 per cent more expensive than rivals like Bangladesh and Vietnam, which enjoy lower duties.
Drop in orders: Order volumes for staple products have reportedly plummeted by up to 70 per cent from the US, which accounts for nearly 29 per cent of India's textile exports.
MSME vulnerability: The fallout has been immediate for the Micro, Small, and Medium Enterprises (MSMEs), which constitute about 70 per cent of India's textile manufacturing units. These units are grappling with delayed payments, order cancellations, and rising Non-Performing Asset (NPA) risks.
Credit rating agency ICRA has revised the outlook on the Indian Apparel (exports) industry to Negative for FY2026, projecting revenues to shrink by 6-9 per cent and operating profit margins to compress to around 7.5 per cent from 10 per cent in FY2025 if the tariffs persist.
Diversification as the new growth mantra
Leading Indian apparel brand Gokaldas Exports, known for its historical focus on manufacturing for major global labels and a diversified product portfolio, serves as an example of a potential strategic pivot.
Founded in 1979, Gokaldas Exports is one of India's largest manufacturers and exporters of apparel, serving over 50 international customers. Historically, its performance has been closely tied to global retail sentiment. Their growth plan focuses on strategic acquisitions for capacity expansion, product diversification beyond core woven garments into knitwear, and leveraging government incentives like the Production-Linked Incentive (PLI) scheme. Despite the current bug bears, investor sentiment remains cautiously optimistic, with the company's stock seeing rallies on hopes of an impending India-US trade deal. This move towards knitwear and man-made fibres (MMF) aligns with the government's PLI focus, positioning the company to mitigate cotton-centric market volatility and US tariff pressures by targeting non-US, non-cotton-dominated markets.
Seeking relief in trade deals and domestic demand
The industry's near-term recovery hinges on two critical factors: the swift conclusion of an India-US trade deal to ease tariffs, and the resilience of domestic demand. While exports are under pressure, the overall Indian textile and apparel market is projected to reach $646.96 billion by 2033, at a Compound Annual Growth Rate (CAGR) of nearly 12 per cent influenced by rising domestic consumption and a growing focus on sustainability.
Policymakers are under pressure to act quickly, as the continued payment and liquidity crunch threatens job security in key manufacturing clusters. The hope is that the positive signals regarding trade negotiations will translate into immediate tariff relief, stabilizing buyer confidence and allowing Indian exporters to recapture lost market share before supply chains permanently reconfigure.