Textile sector needs incentive cushion as 50% US tariffs too steep to absorb: Report

New Delhi [India], September 9 : The textile industry in India urgently requires an incentive cushion as the recently imposed 50 per cent tariffs by the United States are too steep for exporters to absorb, according to a recent report by Emkay Research.

The report highlighted that such high tariff levels will lead to erosion of already low margins in the sector, which is struggling to stay competitive in global markets.

It stated, "Around 50 per cent US tariffstoo steep to absorbwill require incentive cushion."

The report noted that the additional 10 per cent baseline tariff imposed by the US on April 2, 2025, has already started impacting margins.

In the 90-day window after the fresh duty, the tariff burden was equally shared between exporters and customers in order to protect margins.

However, with cumulative tariffs now at around 50 per cent, exporters are finding it difficult to bear the pressure, leading to margin stress and inventory overhang.

The report highlighted that government support is crucial, especially for micro, small and medium enterprises (MSMEs). Unlike large exporters, MSMEs lack balance-sheet strength and are highly vulnerable to disruptions in international trade.

While near-term disruption is evident, the report said medium-term cushioning factors such as domestic demand, free trade agreements (FTAs), and structural reforms provide tailwinds.

However, it added that the timeline for relief measures will be vital for stability. India's global textile market share stands at around 4 per cent, much lower than Bangladesh at 13 per cent and Vietnam at 9 per cent, with execution challenges slowing FTA gains.

The Tiruppur cluster, which accounts for 55-60 per cent of India's total knitwear exports valued at nearly Rs 700 billion, has been hit particularly hard. Since the imposition of the new duties, US exports worth nearly Rs 40 billion have been suspended.

Along with higher tariffs, deferred payments from US retailers and seasonal inventory risks have created additional stress for local garment players.

The report pointed out that recent government measures, such as reducing GST on garments priced below Rs 2,500 to 5 per cent from 12 per cent and exempting the 11 per cent duty on cotton imports, will help the industry in the medium to long term.

However, it said the sector needs short-term fiscal stimulus and targeted incentives to absorb the tariff shock and stay relevant in the global supply chain.

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