As Finance Minister Nirmala Sitharaman prepares to table the Union Budget 2026 on February 1, few sectors are watching the clock as closely as textiles and apparel. Employing more than 45 million people directly and supporting millions more indirectly, the industry stands at a moment of deep uncertainty and latent opportunity. A fragile global recovery, the shock of a steep 50 per cent tariff on Indian exports to the US effective August 2025, and the steady advance of duty-free competitors have exposed structural vulnerabilities that incremental policy tweaks can no longer mask. What the sector is seeking from Budget 2026 is not relief alone, but a fundamental re-weaving of India’s competitiveness in global and domestic markets alike.

A world redrawn by trade and tariffs

The external environment confronting Indian exporters in 2026 resembles a high-stakes chessboard. Since August 27, 2025, shipments to the US, India’s single largest apparel export destination have been hit by a 50 per cent reciprocal tariff. The impact has been immediate and visceral. In Ludhiana’s winterwear units and Tiruppur’s knitwear factories, orders have slowed, buyer negotiations have grown brittle, and margins that were already thin have been pushed to the edge. For many MSMEs, the tariff shock has not merely reduced profitability; it has raised existential questions about survival.

Yet even as one door narrows, another appears to be opening. Negotiations for the India-EU Free Trade Agreement are expected to conclude by January 27, 2026, and for the textile sector, the timing could not be more critical. Mukesh Kansal, Chairman, CTA Apparels, sees it as far more than a tariff adjustment. In his view, duty-free or reduced-duty access to the EU would recalibrate India’s cost structure vis-à-vis countries that currently enjoy preferential access, while also reinforcing India’s credibility as a compliant and responsible sourcing hub. This matters profoundly in a European market increasingly shaped by sustainability mandates, traceability requirements, and ethical sourcing norms. In effect, the FTA offers India a chance to pivot from being merely competitive on price to being indispensable on trust.

Large exporters echo this emphasis on continuity and predictability. Pearl Global Industries, which reported a 12.7 per cent year-on-year revenue growth to Rs 2,541 crore in the first half of FY26 despite global headwinds, illustrates what scale and diversification can still achieve. Group CFO Sanjay Gandhi argues that progress on FTAs with the EU and the UK could act as a powerful catalyst just as global demand begins to normalize. However, he is equally clear that trade agreements alone are insufficient. Without stable policies, efficient logistics, and sustained investment in skilling, India risks squandering the very opportunities that geopolitical realignments are creating.

The domestic force behind the Viksit Bharat vision

While exports dominate headlines, domestic consumption remains the industry’s most reliable anchor. India’s aspiration of becoming a Viksit Bharat rests heavily on sustaining a virtuous consumption cycle, and textiles sit at the heart of that equation. Gautam Singhania, Chairman and Managing Director of Raymond Group, has repeatedly underscored that policies supporting consumer sentiment and disposable incomes can generate a meaningful multiplier effect across retail, manufacturing, and employment.

This dual dependence on domestic demand and export competitiveness is captured in the industry’s medium-term projections.

Table: India’s textile & apparel market projection (FY25-FY30)

Source: Invest India & CITI, January 2026

The numbers tell a story of ambition tempered by conditions. Doubling the total market to $350 billion within five years assumes not just rising incomes but a decisive shift toward man-made fibres, where India has historically lagged despite global demand skewing strongly in their favor. Similarly, the leap from $38 billion to $100 billion in exports hinges on the successful conclusion and implementation of FTAs, alongside the effectiveness of schemes such as PLI 2.0. Employment growth to over 60 million, meanwhile, rests on whether mega infrastructure initiatives like PM MITRA Parks can genuinely integrate MSMEs into globally competitive value chains rather than remaining islands of large-scale manufacturing.

The industry’s call for stability and modernisation

It is against this backdrop that the Confederation of Indian Textile Industry (CITI) has framed its pre-Budget memorandum. Rather than a laundry list of incentives, CITI’s submission reads as a blueprint for futureproofing a sector that must adapt to volatile commodity cycles, tightening sustainability norms, and shifting trade regimes. Chairman Ashwin Chandran situates textiles as central to the Viksit Bharat goal, arguing that its labour intensity and export potential make it uniquely suited to inclusive growth.

At the core of CITI’s argument lies raw material volatility. Cotton prices, buffeted by global supply shocks and domestic policy distortions, have eroded predictability for spinners and garmenters alike. The proposal to remove the 11 per cent import duty on cotton and to establish a Cotton Price Stabilisation Fund is less about cheap imports than about aligning domestic prices with international realities. Without such alignment India risks undermining its own competitiveness at the very first stage of the value chain.

Sustainability forms the second pillar of the industry’s expectations. As global buyers tighten carbon and compliance benchmarks, especially in Europe, MSMEs face the paradox of needing to invest in green technologies without access to affordable capital. A dedicated Green Technology Scheme, as proposed by CITI, could bridge this gap, enabling smaller units to transition to clean energy and resource-efficient processes without being priced out of global markets.

The third pillar is infrastructure and technology. With the Technology Upgradation Fund Scheme (TUFS) effectively exhausted, the call for a National Textile Fund reflects the industry’s recognition that modernization cannot be episodic. Continuous upgrading of machinery, logistics, and digital capabilities is now a baseline requirement rather than a competitive edge.

Tiruppur, a cluster under pressure, a mirror of the future

Few places illustrate the stakes of Budget 2026 as vividly as Tiruppur. Producing nearly 70 per cent of India’s knitwear exports, the cluster has been described by many exporters as ground zero of the US tariff shock. For MSMEs operating on wafer-thin margins, the sudden loss of price competitiveness has felt like a death knell. Orders have shifted to countries with preferential access, and cash flows have tightened to the point where even compliance investments feel out of reach.

Yet Tiruppur also reflects the sector’s resilience and capacity for reinvention. Entrepreneurs like Tejasvi Madan, Founder direct-to-consumer label Beyond Bound, views the Budget not merely as a relief package but as an inflection point for India’s fast-moving apparel ecosystem. Her call for a uniform GST structure speaks to the daily frictions that startups face, where inverted duty structures distort pricing and working capital. Equally significant is her emphasis on focused incentives for women-led enterprises, aligning India’s policy framework with the ethical and diversity benchmarks increasingly demanded by global buyers.

A budget that decides the industry’s trajectory

As India sets its sights on a $350 billion textile and apparel industry by 2030, the Union Budget 2026 will play a defining role in shaping the path ahead. Decisions on raw material duties, trade support mechanisms, infrastructure funding, and tax rationalization will collectively determine whether India remains trapped in a low-cost manufacturing paradigm or evolves into the world’s preferred hub for high-value, sustainable apparel.

The stakes extend beyond balance sheets and export targets. For millions of workers, clusters, and entrepreneurs, the Budget will signal whether policy is prepared to match rhetoric with structural reform. In that sense, February 1 is not merely a fiscal milestone. It is a moment when India must decide how it intends to weave its textile future into the fabric of a changing global economy.