What Happened
- The India-US interim trade framework opens access to the $118 billion US textile and apparel import market for Indian exporters by reducing reciprocal tariffs from 50% to 18%.
- India's 18% tariff rate positions it more favourably than key competitors: Bangladesh (19-20%), China (30%), Pakistan (19%), and Vietnam (20%).
- The deal includes a zero-duty clause allowing textile and apparel goods made using US cotton and man-made fibre inputs to enter the US at zero reciprocal tariff, matching the facility offered to Bangladesh.
- Commerce Minister Piyush Goyal stated that India would receive the same zero-tariff textile benefits as Bangladesh under the framework.
- However, the subsequent US-Bangladesh deal offering a similar zero-tariff clause for garments using US cotton raised concerns about whether India's competitive advantage would be fully realised.
Static Topic Bridges
India's Textile and Apparel Industry: Structure and Global Position
India's textile sector is one of the oldest and largest in the world, contributing approximately 2.3% of GDP, 7% of industrial output, and 12% of total export earnings. The sector is the second-largest employer after agriculture, supporting over 45 million direct jobs and 100 million indirect jobs across the value chain.
- India's total textile and apparel exports were approximately $35-37 billion in 2024-25
- The US is India's largest textile export destination, absorbing approximately $10.5 billion (about 30% of textile exports)
- India ranks third globally in garment exports ($4.07 billion in H1 2025), behind China ($38.1 billion) and Vietnam ($8.93 billion)
- India has a complete textile value chain: from raw fibre production (cotton, jute, silk) through spinning, weaving, processing, and garment manufacturing
- India is the world's largest producer of cotton (approximately 30 million bales annually) and the second-largest producer of textiles overall
Connection to this news: The tariff reduction unlocks a disproportionately large opportunity for India's textile sector given its complete value chain and cotton production base, potentially enabling India to close the gap with Vietnam and Bangladesh in the US market.
Zero-Duty Clause and Rules of Origin: The Cotton Input Condition
The deal includes a specific provision for zero-tariff access on textiles and apparel manufactured using US cotton and US man-made fibre inputs. Rules of origin provisions in trade agreements determine which country gets credit for producing a good, typically requiring substantial transformation or value addition within the exporting country.
- The US produces approximately 15-17 million bales of cotton annually and is the world's largest cotton exporter
- Rules of origin in textile trade typically require a "yarn-forward" or "fibre-forward" rule, meaning the yarn or fibre must originate in the exporting or importing country
- Under the India-US deal, using US cotton as input qualifies the finished garment for zero duty, incentivising Indian manufacturers to source American cotton
- A similar clause in the US-Bangladesh deal means Bangladesh can also achieve zero duty by using US cotton, maintaining competitive pressure
- India's own cotton production is sufficient for domestic needs, so the incentive to use US cotton represents additional cost calculation for exporters
Connection to this news: The zero-duty clause creates a commercial incentive for Indian garment manufacturers to import US cotton rather than use domestic cotton, which could paradoxically disadvantage Indian cotton farmers while benefiting garment exporters, unless manufacturers can competitively blend US and domestic cotton inputs.
Bangladesh as India's Primary Textile Competitor in the US Market
Bangladesh is the world's second-largest garment exporter and India's main competitor in the US market for apparel. The two countries compete across similar product segments: cotton shirts, trousers, woven garments, and knitwear.
- Bangladesh's garment exports totalled approximately $40-42 billion in 2024-25, with the US being its second-largest market after the EU
- Bangladesh had historically enjoyed Generalized System of Preferences (GSP) benefits in many markets, though not from the US
- Bangladesh's competitive advantage rests on lower labour costs (minimum wage approximately $113/month vs. India's varying state minimum wages of $150-250/month) and specialised cluster-based production
- The US-Bangladesh deal reduced tariffs from a proposed 37% to approximately 19%, just 1% higher than India's 18% rate
- The tariff differential between India and Bangladesh halved from 2% to 1%, narrowing India's advantage in a sector with thin profit margins (5-10%)
Connection to this news: While India secured a nominally better tariff rate than Bangladesh (18% vs. 19%), the narrowing differential to just 1% means India's competitive edge will depend more on product quality, lead times, and value chain integration rather than tariff advantage alone.
Key Facts & Data
- US global textile and apparel imports: $118 billion
- India's tariff rate to US: 18% (down from 50%)
- Competitor tariff rates: Bangladesh 19-20%, China 30%, Vietnam 20%, Pakistan 19%
- India's textile and apparel exports: approximately $35-37 billion (2024-25)
- India's textile exports to US: approximately $10.5 billion (30% of total textile exports)
- India's textile sector employs 45 million directly, 100 million indirectly
- Sector contribution: 2.3% of GDP, 7% of industrial output, 12% of total exports
- India-Bangladesh tariff differential: narrowed to 1 percentage point
- Zero-duty route: textiles made with US cotton and man-made fibre inputs