India’s garment industry growth to halve to 3-5pc this fiscal, amid US tariff headwinds: Crisil Ratings

NEW DELHI: The revenue growth of India’s readymade garment (RMG) industry is expected to slow sharply to 3-5 per cent this fiscal, nearly halving from last year’s levels, according to a report by Crisil Ratings.

The report added that that will impact the credit indicators for industry participants, as well as a drop in profitability.

The impact will vary by company, some of which get more than 40 per cent of their revenue from the US, the report added, based on the analysis of over 120 RMG makers, with total revenue of Rs 45,000 crore.

RMG exports totalled USD 16 billion last fiscal and accounted for 27 per cent of the RMG sector’s revenue (see chart 1). A third of the exports were to the US. The 50 per cent tariff puts India at a distinct disadvantage compared with competing nations 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 per cent on-year to USD 4 billion, with exports to US recording a 14 per cent growth during the same period. The trend is expected to sustain through 26th August till the enhanced tariffs kick in. Post 50 per cent 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 per cent last fiscal to 20-25 per cent this fiscal.”

This would mean players will have to realign trade with other major export destinations—the European Union (EU), United Kingdom (UK) and United Arab Emirates (UAE), which together form 45 per cent of India’s exports for fiscal 2025.

The recently signed Free Trade Agreement (FTA) with the UK is also likely to result in higher exports to that country from the end of this fiscal, providing some relief to the industry, the report added.

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 per cent 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.”

Weaker revenue growth and tariff-driven competitive disadvantage in the US will impact the profitability of India manufacturers. Profitability of RMG exporters dependent on the US could contract 300-500 basis points as they will bear the tariff brunt.

Further, potential oversupply in the domestic market may also impact domestic margins to some extent. Therefore, profitability at the industry level may dip 50-150 bps this fiscal, the Crisil Ratings report added.

The report further added that the continuation of higher tariffs on India versus competing nations, the impact on demand in the US because of inflationary pressures and any higher-than-expected increase in cotton prices are all factors that can impact operating performance for Indian RMG manufacturers. (ANI)