From Tariff Shock to Trade Realignment: How the India-UK FTA Offers a Lifeline for Indian Textiles

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31 Aug, 2025

From Tariff Shock to Trade Realignment: How the India-UK FTA Offers a Lifeline for Indian Textiles

1. A U.S. Tariff Tide: The Challenge Ahead

With the U.S. imposing steep 50% reciprocal tariffs on Indian goods—including textiles—exporters are staring down a major disruption. The U.S. has historically been India’s top textile export market, accounting for roughly 28–29% of exports through CY24 , . Anticipating lower competitiveness and margin erosion, exporters may see volumes drop significantly through CY26.

2. A Golden Thread: Leveraging the UK FTA

The recently concluded India-UK Free Trade Agreement FTA is emerging as a potential buffer. Under this FTA, Indian ready-made garments RMG and home textiles gain duty-free access to a nearly USD 23 billion UK import market, strengthening parity with regional competitors like Bangladesh and Vietnam.

3. Cushioning the Blow: Market Diversion in Action

According to a report by CareEdge Ratings, while India's textile export volume is projected to decline by 9–10% in CY26, the negative impact could be cushioned through realignment:

Growth in cotton yarn and fabric exports.
Accelerated access to the UK under FTA terms.
Continued trade expansion into the EU as negotiations evolve.

4. Regional Growth Hubs Firing Up

States like Gujarat—which represent more than 12% of India’s textile exports—stand to benefit substantially. Tariff cuts of 8–16% on exports to the UK could potentially double shipments by 2026, revitalizing regional manufacturing clusters in Surat and Ahmedabad.

5. Growth Beyond Textiles

The UK FTA opens wide opportunities for:

Garment sector—exports might double.
Man-made fiber MMF value chain—including knitwear—set to expand rapidly with tailored investments .
Long-term, overall trade volumes are expected to double in 5–6 years, especially in apparel and home textile categories .

6. Strategic Implications for the Indian Market

Export Stability: The UK may absorb volumes lost from the U.S., mitigating immediate revenue hit.
Supplier Realignment: Investment shifts toward MMF infrastructure and technical textiles.
Job Creation & MSME Growth: Growth in textile hubs like Tiruppur and Ludhiana could generate new employment and scale MSMEs.
Enhanced Policy Support: Expect ampler government assistance, export incentives, and global market outreach.

Bottom Line

While U.S. tariffs present a sizable shock, the India-UK FTA provides a strategic pivot—enabling textile exporters to rebuild revenue through alternative markets, invest in value chains, and innovate product lines. With focused local scaling, policy support, and global outreach, India’s textile sector can stitch a resilient and expansive post-tariff revival—and strengthen its positioning in the global textile trade.

By Nehal Taparia

This content is for educational and knowledge purposes only and should not be considered as investment or Trading advice. Please consult a certified financial advisor before making any investment or Trading decisions.

Our Recent FAQS

Frequently Asked Question &
Answers Here

Why are U.S. tariffs such a big deal?

The 50% tariffs, effective from 27 August, directly target India's biggest textile export market 28–29% share, threatening volumes and profitability.

Can the UK FTA really offset U.S. losses?

It's not a full fix—but duty-free access to the UK market under the FTA can significantly cushion losses, especially for RMG and home textiles.

How much decline is expected in exports by CY26?

CareEdge Ratings projects a 9–10% drop in textile exports in CY26, with PBILDT margins slipping 300–500 basis points unless mitigated.

Which Indian regions benefit most?

Textile hubs in Gujarat Surat, Ahmedabad are poised to double exports by 2026 under the FTA, boosting regional manufacturing and employment.

What sectors derive broader gains from the FTA?

Beyond textiles: man-made fiber MMF, knitwear, leather/footwear, and apparel. MMF exports like winter and athleisure could double with needed localisation and investment.

How fast could UK trade volumes rise?

ICRA forecasts apparel and home textile trade with the UK could double in 5–6 years after the FTA goes live likely in CY26.

What other support can help exporters?

Export incentives, interest subsidies, and outreach to 40 global markets via EPCs are being mobilized to diversify and bolster competitiveness.

Are MSMEs well-equipped to capitalize on this shift?

MSMEs will need support to upgrade compliance, scale operations, and understand FTA rules—some lack clarity, which could limit gains without structured aid.

What’s the longer-term outlook?

A balanced strategy spanning the U.S., UK, and EU markets—with improved infrastructure, diversified products, and better trade terms—could reduce future disruption risks.

Any hidden challenges?

Yes—exporters must navigate technical standards, sustainability norms, RoO Rules-of-Origin, and stiff competition in MMF-rich nations like Bangladesh and Vietnam.