Indian textile and apparel exporters are facing mounting pressure from weak US demand, falling shipment volumes and rising raw material costs, even as improved price realisations and emerging trade agreements offer some support in Europe. Indian apparel exports fell 3 per cent year-on-year to $2.58 billion in July-August 2026, with shipments to the US emerging as the biggest drag. Home textile exports, however, rose 4 per cent to $1.18 billion during the period, despite a 5 per cent decline in direct shipments to the American market.

US import data highlights the severity of the slowdown. American import of apparel from India fell 30 per cent in value to $622 million during July-August, while volumes contracted 32 to 174 million sq. mt. The decline was steeper than the 6 per cent fall in total US apparel imports to $13.99 billion. Regional competitors fared better. Bangladesh maintained apparel import values at $1.39 billion, with volumes declining just 1 per cent while Vietnam recorded a 5 per cent drop to $3.13 billion.

US inventory glut

Rising inventories and slower retail sales are reshaping American sourcing decisions. US clothing and accessories retailer inventories increased 2.5 per cent year-on-year in August 2026, reversing the decline seen in late 2024. Meanwhile, retail sales growth slowed from 8.6 per cent in February to 3.2 per cent in August.

The combination has encouraged retailers to reduce warehouse stocks, defer seasonal orders and exercise greater caution in replenishment. Indian suppliers of basic apparel and woven bedding, which compete largely on price and volumes, have been particularly exposed.

Analysts believe, inventory discipline among major US department store chains had led to order deferrals, disproportionately affecting Indian basic apparel and woven bedding. Exporters able to maintain contract pricing in terry towels and high-thread-count made-ups have been better positioned to protect margins, while commodity product lines remain vulnerable to regional tariff competition.

Bedding under pressure

The US slowdown has spread across towels, sheets and finished bedroom products, with performance varying by category.

Table: US-EU apparel, bedding imports from India

Indian cotton towel shipments to the US declined 4 per cent in value to $99 million, with volumes falling 8 per cent to 16 million pieces. However, average realisation rose 4 per cent to $6.20 per piece, partially offsetting the volume loss.

Competition is intensifying. China increased its US cotton towel exports by 55 per cent to $50 million, supported by a 21 per cent rise in volumes. In cotton sheets, Indian shipments declined 12 per cent to $104 million, as volumes fell 10 per cent and realisations dropped 2 per cent to $1.80 per unit. Pakistan, meanwhile, increase sheet exports by 14 per cent to $49 million, supported by substantially lower unit pricing.

Finished bedroom products faced sharper declines. Indian bedspread and quilt exports dropped 24 per cent in value and 30 per cent in volume, despite a 8 per cent increase in realisations. Pillowcase shipments fell 40 per cent to $17.2 million, with volumes down 34 per cent and unit realisations declining 10 per cent.

The contrasting performance underscores the importance of pricing power. Higher realisations can cushion shipment declines, but only where buyers accept price increases and suppliers retain sufficient product differentiation.

Cotton costs bite

Higher domestic fibre prices are adding to the pressure on export margins. Cotton prices in September 2026 declined 1 per cent month-on-month but remained 19 per cent above year-earlier levels. Cotton yarn prices fell 2 per cent sequentially while staying 27 per cent higher than in September 2025.

Exporters are struggling to pass these increases on to overseas buyers because prices are often negotiated months before shipment. The resulting mismatch between procurement costs and contracted selling prices is squeezing manufacturing spreads.

A vertically integrated spinning and weaving mill in Coimbatore, cited in the sector analysis, maintained bed-linen loom utilisation at 82 per cent to meet German contract schedules but recorded a 210-basis-point contraction in gross manufacturing margin in the second quarter. Yarn inventories procured at elevated prices earlier in 2026 contributed to the pressure.

The government has extended the Rebate of State and Central Taxes and Levies (RoSCTL) and Remission of Duties and Taxes on Exported Products (RoDTEP) schemes at existing rates through December 31, 2026. Exporters, however, want greater policy visibility into 2027 to support longer-term tender pricing and production planning.

Europe offers relief

European markets are giving some protection through stronger unit realisations, although volumes remain weak. Indian apparel imports into the EU fell 6 per cent to €702 million in July-August 2026, with volumes declining 8 per cent. Average realisations rose 1 per cent to €19 per kg. Home textile shipments remained broadly stable at €200 million, down 1 per cent in value, as an 8% increase in realisations offset a similar decline in volumes.

Trade policy could strengthen India's competitive position. On September 11, 2026, the European Commission submitted the India-EU Free Trade Agreement to the Council for formal signature and conclusion, advancing the agreement towards implementation. The prospective tariff benefits could improve India's position against suppliers enjoying preferential market access, although the timing and terms of implementation remain important.

The UK market presents a similar combination of weaker demand and potential trade advantages. Indian apparel shipments declined 10 per cent to £125 million, while home textile exports fell 3 per cent to £34 million. The India-UK Comprehensive Economic and Trade Agreement, which entered into force on July 15, 2026, gives exporters a framework for better tariff access, subject to applicable product rules and origin requirements. As Mehul Madhwal, co-author of the Equirus Securities sector report says, preferential access under the agreement could help Indian converters manage raw material volatility, provided production facilities meet origin verification requirements.

Execution is critical

For Indian exporters, trade agreements alone will not reverse the downturn. Their benefits depend on compliance, competitive pricing, reliable delivery and the ability to absorb short-term cost fluctuations. The immediate challenge is to manage weaker US orders without compromising liquidity, while protecting margins through product differentiation and disciplined procurement. European trade agreements offer a potential medium-term advantage, but exporters must translate preferential access into orders.

With cotton and yarn costs still elevated, the next phase will test whether Indian textile manufacturers can diversify demand, improve operating efficiency and convert trade policy gains into sustained export growth.

India’s apparel manufacturing sector is beginning to shift production beyond traditional hubs such as Tirupur, Bengaluru and the National Capital Region (NCR). Increasing wages, labour shortages, worker attrition and expensive industrial real estate are pushing manufacturers to explore Odisha, Bihar, Jharkhand and Madhya Pradesh. The shift reflects a change in factory revenuues. Cutting, sewing, finishing and packing account for an estimated 25-35 per cent of garment operating expenses making labour costs critical to competitiveness. Monthly wages for skilled workers in established clusters often range from Rs 11,000-15,000, while emerging production centres offer lower statutory wage structures, typically around Rs 8,000-10,000.

For exporters operating on net margins of just 5-8 per cent, the difference can influence investment decisions and order profitability. Manufacturers are also seeking to reduce dependence on migrant labour by locating factories closer to workers’ home states.

The cost equation

Note: Wage ranges are indicative not verified state-wide averages.

Incentives drive investment

For decades, garment factories in southern India relied on workers migrating from Bihar, Odisha and UP. Establishing production closer to these labour pools can reduce recruitment expenses, accommodation costs and disruption caused by seasonal migration.

State incentives are strengthening the case for relocation. Textile and apparel policies in emerging manufacturing regions offer varying combinations of capital subsidies, power concessions and employment-linked support. The source material cites capital subsidies of up to 30 per cent, electricity concessions of Rs 2 per unit and monthly employment grants of Rs 3,000-5,000 per worker for periods of up to five years, subject to scheme-specific eligibility.

These incentives can reduce the initial cost of setting up greenfield factories. However, their value depends on disbursement timelines, infrastructure availability, workforce training and the ability to sustain production at commercially viable efficiency levels.

The logistics gap

Lower wages do not automatically translate into lower manufacturing costs. Established clusters such as Tirupur have tightly integrated networks of spinning mills, dyeing and processing units, printing facilities, trim suppliers and garment manufacturers. Their proximity reduces inventory requirements, coordination costs and turnaround times.

Emerging eastern and central hubs lack comparable supplier density. Manufacturers may need to transport fabric from southern or western mills to inland factories and then move finished garments to ports such as Chennai or Nhava Sheva. Additional freight movements can extend lead times by three to five business days, complicating orders that require fulfilment within 45 days. Longer transit routes also increase exposure to logistics disruptions and working-capital requirements.

Productivity has another challenge. Newer factories may initially achieve line efficiencies of 45-55 per cent, compared to 75-85 per cent in established centres. Closing that gap requires investment in training, experienced supervisors, production planning and quality control. Wage savings must therefore be measured against the cost of building operational capabilities.

A hub-and-spoke model

Apparel manufacturers are now exploring a division of production between established clusters and emerging locations. The source material identifies KPR Mill’s reported Rs 450-crore investment in Odisha, alongside production expansion by Gokaldas Exports and Pearl Global Industries in central India and adjoining regions. Page Industries is also cited as expanding its manufacturing footprint in eastern India.

Under a hub-and-spoke model, factories in newer locations can handle standardised, high-volume products such as basic T-shirts, briefs and loungewear. Established facilities can retain complex garments that require specialised processes, established supplier relationships and higher technical capabilities.

This approach allows manufacturers to diversify labour supply and production capacity without immediately replicating the entire textile ecosystem in a new location. The logic is clear: factory location is increasingly determined by the balance between labour availability, productivity, logistics and proximity to suppliers not simply access to ports or established industrial infrastructure.

Page Industries, the exclusive licensee of Jockey International across India and several neighbouring and Gulf markets, also holds licensing rights for Speedo. Founded in 1994, the company manufactures innerwear, loungewear and athleisure through a network of 16 manufacturing units.

The source material reports FY25 revenue of ₹49,349 million and operating margins above 21%, alongside an expansion strategy that includes eastern India. Its distribution network spans more than 110,000 retail touchpoints.

For manufacturers with substantial domestic distribution networks, additional production locations can support volume growth and diversify operational risk. But inland expansion will deliver lasting savings only if factories build productivity, secure reliable suppliers and control freight costs.

India’s garment industry is not abandoning its traditional hubs. It is recalibrating their role. As labour economics change, established clusters may increasingly concentrate on technically demanding production while emerging centres compete for standardised, labour-intensive orders. The success of this transition will depend on whether lower wages can offset the costs of distance, training and ecosystem development.

India's textile and apparel exporters are preparing for a shift in European sourcing as negotiations for the India-European Union Free Trade Agreement (FTA) conclude and the agreement moves towards legal scrutiny, signing and ratification. With implementation targeted for the first half of 2027, European retailers and Indian manufacturers are already reassessing sourcing strategies to capture the benefits of preferential market access.

Under the proposed agreement, the European Union will eliminate tariffs on approximately 99.5 per cent of Indian export lines. For Indian textile and apparel manufacturers, this means the removal of import duties ranging between 9 per cent and 12 per cent on several product categories, improving their competitiveness against suppliers in Bangladesh, Vietnam and Pakistan.

The agreement could unlock an additional $15-20 billion in Indian apparel exports over the first three to five years of implementation, according to industry projections. However, the opportunity will depend on how quickly manufacturers can scale production, meet European compliance requirements and establish direct relationships with international buyers.

Zero duty resets sourcing

The European Union’s apparel and textile import market is estimated at $263.5 billion, but India's share remains below 5 per cent. Removing tariff disadvantage could improve India's access to European retail procurement networks, particularly in Germany, France and Nordic markets.

The competitive implications are significant. Bangladesh benefits from duty-free access under the Everything But Arms (EBA) arrangement, while Vietnam enjoys preferential access under its EU trade agreement. Pakistan also benefits from GSP+ concessions. India's existing most-favoured-nation tariff structure has therefore placed its exporters at a cost disadvantage.

Table: EU RMG supplier comparison

India's existing export basket to the EU is relatively diversified. Ready-made garments account for approximately 60 per cent of textile and apparel shipments, followed by cotton textiles at 17 per cent, man-made fibre textiles at 12 per cent, and handicrafts, carpets, jute and other products at 11 per cent. This gives opportunities beyond conventional garment exports, particularly for home textiles, cotton fabrics, MMF products and value-added textile categories.

Exporters redirect capital towards Europe

Uncertainty around US trade policies and tariffs is increasing the diversification of export markets. Indian manufacturers are now looking at Europe as a larger component of their order books. Gokaldas Exports has allocated Rs 1.25 billion ($13.2 million) in capital expenditure towards capacity expansion and plans to increase Europe's contribution to its order book from approximately 10-30 per cent. The move reflects a broader effort to reduce dependence on the North American market. Other large textile groups, including Arvind Limited, Welspun Living and KPR Mill, are investing in domestic manufacturing capabilities, automated weaving, garment production and digital warehousing.

Rather than shifting production overseas to secure preferential access, these companies are looking to strengthen manufacturing infrastructure across Tamil Nadu, Gujarat and Haryana.

India's integrated textile sector, spanning cotton cultivation, spinning, weaving, processing and garment manufacturing, could offer European buyers greater supply-chain visibility and procurement flexibility. However, the advantage will depend on improving processing efficiency, delivery timelines and manufacturing costs.

Compliance the new trade barrier

Zero-duty access will not automatically translate into frictionless entry into European markets. Environmental and product-transparency regulations are emerging as equally important determinants of export competitiveness.

The FTA's proposed implementation timeline coincides with the European Union's expanding regulatory framework, including the Corporate Sustainability Due Diligence Directive (CSDDD), Extended Producer Responsibility (EPR) requirements and Digital Product Passports (DPP). EPR requirements scheduled for rollout from mid-2027 will increase producer responsibility for textile waste and product disposal. DPP implementation, expected to progress across 2027–28, will require greater transparency around product composition, material origins and supply-chain information.

For Indian exporters, this means developing digital reporting systems capable of capturing fibre origins, chemical management, water consumption and production-level traceability.

Smaller Tier-II, III suppliers could face particular difficulties in meeting these requirements. India has 342 production districts contributing to European shipments, making the digitisation of fragmented manufacturing networks an important priority. Manufacturers using coal-fired boilers will also face increasing pressure to reduce emissions. Textile clusters in Tirupur, Karur and Surat will need to accelerate investments in renewable energy, biomass and more efficient processing technologies.

Tirupur trial shows cost advantage

A production trial involving a European mass-market retailer offers an indication of how tariff elimination could alter sourcing decisions. In early 2026, the retailer reportedly divided a 600,000-unit order for circular-knit women's crewneck tops between a manufacturing cluster in Chattogram and an integrated facility in Tirupur.

The Indian facility had a higher base production cost of $4.10 per unit against $3.80 in Chattogram. However, the existing 9.6 per cent EU tariff on Indian shipments increased its landed cost disadvantage. Under the proposed zero-duty framework, the tariff differential disappears.

The trial's calculations showed that the Tirupur facility could achieve a net landed cost of $4.16 per unit against $4.25 for the Chattogram supplier, representing a 2.1 per cent saving. The Indian facility also offered farm-to-garment traceability and a seven-day shorter sea transit time in the comparison. The findings show how integrated manufacturing can offset higher production costs when tariff advantages and supply-chain efficiencies are combined. However, the trial is a specific procurement comparison rather than a universal cost advantage across Indian manufacturing clusters.

The implementation roadmap

The coming 18–24 months will be critical for exporters preparing for the new trade environment.

• Q4 2026: Expected bilateral signing following legal scrutiny.
• Q1–Q2 2027: Targeted ratification and operationalisation of preferential tariffs.
• Mid-2027: Expansion of mandatory EU textile EPR requirements.
• 2027–28: Progressive deployment of Digital Product Passport requirements.

For European retailers, supplier audits, factory onboarding and production allocation will need to begin well before the tariff changes take effect. Manufacturers that delay compliance investments risk losing orders despite improved duty economics.

The Apparel Export Promotion Council (AEPC), established in 1978, will have an important role in supporting India's readymade garment export industry through international market access, factory modernisation and compliance initiatives. The agreement offers Indian manufacturers an opportunity to move beyond price-led competition and become more deeply embedded in European retail supply chains.

But tariff elimination is only the starting point. India's ability to convert preferential access into sustained export growth will depend on manufacturing productivity, reliable delivery, transparent sourcing and environmental compliance. The commercial window is opening in 2027. The competitive advantage, however, will belong to exporters that prepare their supply chains well before zero-duty access becomes operational.