North Indian textile hubs face financial freeze as US tariffs extend credit cycles

The 50 per cent US tariff on Indian textiles has plunged North Indian hubs like Delhi and Ludhiana into a deepening financial crisis, extending far beyond the initial 12.91 per cent contraction in October exports. The core issue is a severe liquidity squeeze driven by an extended credit cycle now stretching up to 6 months for many exporters, according to a recent Confederation of Indian Textile Industry (CITI) survey.  This strain is particularly harsh on the smaller, cash-dependent Micro, Small, and Medium Enterprises (MSMEs) that form the backbone of the region's garment and hosiery manufacturing.

As a case study, Nahar Industries, a Ludhiana-based yarn and garment exporter supplying brands like GAP and Tommy Hilfiger, reports having to absorb up to 25 per cent of the tariff burden to retain US buyers, which has brutally compressed their operating margins. Meanwhile, the sector's reliance on cotton yarn, fabrics, and made-ups, which saw a 13.31 per cent drop in exports in October, directly translates to massive inventory pile-ups and delayed payments from large export houses to smaller ancillary units.

The resultant payment crisis threatens mass layoffs, with the sector employing over 45 million people nationwide. Companies are urgently calling for government support, including a moratorium on loan repayments and collateral-free credit, while simultaneously focusing on the EU market, which accounted for 28.08 per cent of India's textile exports in FY24 in hopes of recovering an estimated $2.5-$3 billion in lost US revenue over the next year.

The tariff crisis for the fibre and yarn sector comes despite India's textile industry's historical significance as the country's second-largest employer after agriculture, contributing 2.3 per cent to the GDP. Pre-tariff, the segment, which includes major players like Vardhman Textiles and Trident, had been on an upward growth trajectory, reinforced by government schemes like the PLI (Production Linked Incentive) for technical textiles, underscoring the sudden and sharp nature of the current financial distress.