Agenda-setting intelligence, analysis and advice for the global fashion community.
When president Donald Trump first unveiled his “Liberation Day” tariffs in April, R.K. Sivasubramaniam, managing director at Raft Garments, had cause for optimism. His factory in the city of Tiruppur, India’s knitwear capital, makes millions of pairs of underwear that he sells for $1 apiece, with about half the output going to the US. Judging by the poster board Trump displayed in the Rose Garden, Indian exporters faced a tax well below that of rivals in Vietnam and Bangladesh.
After Trump’s election last year, Sivasubramaniam had been confident that Prime Minister Narendra Modi’s chummy relationship with the American president would deepen trading ties between India and its biggest customer—so much so that Sivasubramaniam took out a bank loan of about $2 million to buy sewing, printing and elastic-banding machinery.
Sivasubramaniam’s hopes were dashed this summer when the Trump administration slapped an additional tariff on Indian imports as punishment for the country’s purchases of Russian crude oil, doubling the rate to 50 percent, the highest in all of Asia. The levy took effect in late August. The head of an industry association called it the “death knell” for small and midsize apparel makers.
Today India’s $174 billion textile industry, which is among the largest sources of exports for the country and supports more than 45 million jobs, is in a state of flux. Some small factories that sell exclusively to the US have already shut their doors, while others are keeping production lines humming in the hopes that ongoing trade talks will yield a deal quickly.
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In September the local arm of Moody’s Corp. predicted the tariffs, left unchanged, would crimp apparel exports by as much as 9 percent in the fiscal year ending March 2026. Manufacturers are scouting for customers in other parts of the world such as the UK, which signed a free-trade agreement with India in July. In the meantime, industry associations are lobbying the government for emergency relief measures such as help with paying interest on a pile of bank debt that hit a high in June.
Plenty of India’s products would suffer under such a steep tax—particularly those made in labor-intensive industries such as jewellery and leather, which have large numbers of small businesses. Broadly, the duties could slash India’s US-bound exports by almost 52 percent over the medium term and shave 0.9 percent off gross domestic product, according to an analysis by Bloomberg Economics.
But damage to textiles would be uniquely painful for Modi’s economic agenda, which positions the sector as a critical piece of a strategic initiative to bolster domestic manufacturing and attract foreign investment. “It’s not just about the hit to exports this year, it’s also the indirect spillovers to the labor market and more the medium-term game plan to actually increase India’s export market share globally,” says Sonal Varma, chief economist for India and Asia ex-Japan at Nomura Holdings Inc. “Those plans basically are now being questioned.”
Tiruppur, with a population of 878,000, is widely expected to be hit hardest. The municipality in western Tamil Nadu state has been transformed in the past four decades from a farming outpost into the largest concentration of textile makers in the country, supplying global companies such as Nike, Walmart and H&M Hennes & Mauritz. Tiruppur is especially vulnerable, because the knit products manufactured there tend to be basics like T-shirts and underwear, making it easy for buyers to source cheaper comparable garments from other countries.
Growth of a South Indian Textile Hub
“It’s a completely chaotic and confused state,” says Rahul Mehta, president of the Clothing Manufacturers Association of India, an industry group. “It’s not easy to find alternatives to the US market.”
Many analysts assumed the 50 percent tariff will be short-lived, and some recent developments indicate that relations between the two nations, which are often fraught, may be on the mend. Trade negotiators from both sides said talks in New Delhi in mid-September were “positive,” and Trump, who just weeks earlier lamented that India had been lost to “deepest, darkest China,” called Modi to wish him a happy birthday.
After the tariff went into effect on Aug. 27, Sivasubramaniam says his buyers in the US asked for a 16 percent discount, a level that would’ve prevented him from breaking even. “How can we give that?” he says. “We are all working for a single-digit margin.”
After he said no, his US customers, whom he declined to name, scaled back an order for 2 million pieces to 500,000, leaving him with a glut of underwear worth about $1.5 million. He’s been trying to find buyers in Europe and at home, wondering how he’ll be able to pay salaries while making interest payments on his loan if he doesn’t succeed.
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Scores of Indian textile manufacturers made similar debt-funded capital investments after the Covid-19 pandemic, when their customers asked them to add capacity as part of an effort to diversify away from China, according to Srikumar K, a senior vice president at IcraA Ltd., the Moody’s affiliate. “In light of these developments, the sudden tariff-related shock could be a very big negative,” he says. In June, gross outstanding bank credit to the sector hit a high of about 2.8 trillion rupees ($31.6 billion), according to data from the Reserve Bank of India.
An Industry That Bet on Itself
Earlier this summer, Sudhir Sekhri, chairman and managing director at Trend Setters International, was in the middle of building a new garment factory on the outskirts of New Delhi. In June, still confident of India’s standing in the global pecking order, he placed an order for 400 sewing machines and other equipment totaling about $800,000. Sekhri paused his order in August, forcing the plant to sit vacant, though he recently decided to move forward. “If the buyers go away, then factories will shut down,” he says.
About 40 percent of Sivasubramaniam’s roughly 400 workers migrated to Tiruppur from the hinterlands for jobs in the industry and are likely to return to their villages if steady work dries up. The timing is also inconvenient. Diwali, India’s festival of lights and its biggest holiday, is in October, and it’s customary to pay workers a bonus. Sivasubramaniam typically pays about 10 percent of their monthly salary, which ranges from $150 to $400. He’s not sure this year how he’ll pull that off.
By Nic Querolo and Satviki Sanjay
