What Happened
- India's textile and garment exports to the United States declined by 28.7% in February 2026 compared to the same month the previous year, reflecting the impact of US reciprocal and penal tariffs imposed on Indian goods.
- The combined US tariff burden on Indian textile and apparel products reached as high as 50% (25% reciprocal + 25% penal duty) during the August 2025 to February 2026 period, sharply eroding price competitiveness.
- Following a bilateral trade agreement signed in February 2026, US tariffs were reduced to 18% — but exporters remain cautious as US consumer demand has softened and inventories remain elevated.
- Industry bodies and exporters are seeking preferential tariff treatment similar to what Bangladesh receives, and are pushing for inclusion of textiles in any India-US Free Trade Agreement (FTA) under negotiation.
- The medium-term outlook depends on US consumer sentiment and whether India can leverage its existing capacity advantage to win back market share from Bangladesh, Vietnam, and Cambodia.
Static Topic Bridges
India's Textile and Apparel Sector — Structure and Significance
India's textile and apparel industry is one of the oldest and largest industrial sectors in the economy. It contributes approximately 2.3% to GDP, 13% to industrial production, and around 12% to India's total merchandise exports. The sector provides direct employment to over 45 million people, making it the second-largest employer in India after agriculture, and supports roughly 100 million more in ancillary activities.
- India is the world's largest producer of cotton and jute.
- 80% of the industry's capacity is in micro, small, and medium enterprises (MSMEs).
- India aims to grow the sector to $350 billion in annual output and create 3.5 crore new jobs by 2030.
- The US is among India's top three textile export destinations, absorbing 15–18% of total textile exports.
Connection to this news: The 28.7% decline in February 2026 represents a significant blow to an employment-intensive sector dependent on US market access — precisely the vulnerability that tariff disruptions expose.
Most Favoured Nation (MFN) Principle and Reciprocal Tariffs
The MFN principle, embedded in Article I of the GATT (General Agreement on Tariffs and Trade) and administered under the WTO framework, requires that any trade advantage granted to one country must be extended to all WTO members equally. Reciprocal tariffs — differential duties applied bilaterally outside the MFN framework — are seen as inconsistent with WTO norms unless justified under WTO exceptions (e.g., Article XXI national security, safeguard clauses, or bilateral FTAs under Article XXIV).
- The US imposed a 25% "reciprocal tariff" on Indian goods in 2025 on grounds of trade imbalance and non-reciprocity of Indian duties.
- India's WTO-bound MFN tariff on many manufactured goods is higher than that of competitor nations such as Bangladesh (which benefits from LDC preferences and duty-free access to many markets).
- India was removed from the US GSP (Generalised System of Preferences) program in 2019, eliminating duty-free benefits on nearly 2,000 products.
Connection to this news: The reciprocal tariff shock exposed India's lack of a preferential trade arrangement with the US — unlike Bangladesh's LDC-status zero-duty benefits — directly causing the sharp export contraction in textiles.
India-US Trade Relations and the BTA (Bilateral Trade Agreement)
India and the US have historically operated under MFN-based trade with no formal Free Trade Agreement. Efforts toward a mini-deal or a full bilateral trade agreement have been ongoing for years. The February 2026 bilateral arrangement reduced US tariffs from 50% to 18% on Indian goods, including textiles, but India faces stiff competition from nations with lower tariff rates.
- The US is India's largest goods export destination, with India's total exports around $87 billion annually.
- Post-2025 tariff reductions, India's effective textile tariff of 18% still exceeds the rates for Bangladesh (~19% post-reduction) and some ASEAN nations.
- A long-term FTA that includes conditional zero-duty access to Indian textiles (linked to use of US cotton) is under consideration.
Connection to this news: Exporters are banking on a comprehensive FTA for durable tariff relief; until then, the 28.7% decline in February signals ongoing fragility from ad hoc tariff negotiations.
Production-Linked Incentive (PLI) Scheme for Textiles
The PLI (Production-Linked Incentive) scheme for textiles was launched in 2021 to incentivize domestic manufacturing of man-made fibre (MMF) apparel, fabrics, and technical textiles. It offers financial incentives on incremental sales from products manufactured in India over a base year.
- Outlay: ₹10,683 crore over five years.
- Focus areas: MMF garments, MMF fabrics, and 10 segments of technical textiles.
- Designed to reduce India's dependence on cotton-dominated exports and move up the value chain.
Connection to this news: The PLI scheme is intended to make India competitive in higher-value textile categories; however, the tariff shock of 2025–26 has compressed demand before the scheme's full impact materialised.
Key Facts & Data
- India's textile and garment exports to the US declined 28.7% in February 2026 (year-on-year).
- Combined US tariff on Indian textiles: up to 50% (August 2025 – February 2026); reduced to 18% after bilateral deal.
- India's textile sector: 2.3% of GDP, 45 million direct employees, second-largest employer after agriculture.
- India accounts for approximately 33% of American ready-made garment imports (2024).
- India is the world's largest producer of cotton and jute.
- 80% of textile industry capacity is in MSME units.
- India's textile export target: $350 billion by 2030.