India's Garment Industry Faces Revenue Slowdown Amid US Tariffs

India's readymade garment industry is poised for reduced growth this fiscal year, largely due to new US tariffs, according to Crisil Ratings. The report finds that while domestic markets will see growth, the profitability and credit indicators for exporters will be significantly impacted.

India's readymade garment (RMG) industry is set for considerably slower revenue growth this fiscal year, with projections of just 3-5% compared to almost double that rate last year, as revealed by a Crisil Ratings report. The newly imposed tariffs by the US are identified as key hurdles that could adversely affect the credit and profitability for industry participants.

The report explains that the extent of the impact will substantially vary among companies, particularly those heavily reliant on the US market, which constitutes over 40% of their revenue. Last fiscal, RMG exports hit USD 16 billion, forming 27% of the sector's total revenue, with a third directed to the US. Analysts suggest that these companies are at a competitive disadvantage compared to peers in nations like China, Bangladesh, and Vietnam due to the 50% tariff.

Manish Gupta, Deputy Chief Rating Officer at Crisil, pointed out that while there was a 14% growth in RMG exports to the US in the first quarter this fiscal, this trend might not continue post-August 26 when heightened tariffs are enforced. Consequently, exporters may look to shift focus towards the European Union, the United Kingdom, and the United Arab Emirates, key markets making up 45% of India's RMG exports for fiscal 2025. The recent Free Trade Agreement with the UK could provide a timely boost, mitigating some tariff challenges.

Gautam Shahi, Director at Crisil Ratings, noted, "While domestic markets, which account for 75% of the RMG sector's revenue, show growth potential due to favorable economic conditions, the sector's overall growth will be notably slower than last year." The report forecasts a potential contraction in profitability for RMG exporters by 300-500 basis points due to these tariffs, alongside other economic pressures like inflationary trends and cotton price hikes, which could further strain the industry's operating performance.

(With inputs from agencies.)