US Tariffs Create Crisis for India's Textile Industry
The imposition of steep 50% tariffs by the United States has placed immense strain on India's textile and apparel sector, raising urgent questions about the industry's future competitiveness. As the single-largest market for Indian textile exports, accounting for nearly $11 billion or 28% of total exports in FY 2024-25, the US market's accessibility is crucial for the sector's survival.
Tamil Nadu's Textile Heartland Under Pressure
One region facing particularly severe challenges is Tamil Nadu, which contributes a substantial 28% of India's textile exports and employs over 75 lakh workers. Tamil Nadu Finance Minister Thangam Thennarasu has warned that the state's export-driven economy faces disproportionate damage from the US tariff hikes, with an estimated 30 lakh jobs at immediate risk and numerous MSME units potentially facing closure.
The situation has become so critical that Indian exporters have already lost nearly $2 billion worth of textile orders typically placed in December and January, as competing economies like Bangladesh and Vietnam with lower US tariffs capture market share.
Budget 2026's Integrated Modernization Programme
In response to these mounting challenges, Finance Minister Nirmala Sitharaman announced a comprehensive integrated programme during the Union Budget presentation aimed at modernizing this labour-intensive sector. The initiative focuses on strengthening every segment of the textile supply chain through five distinct sub-components:
- The National Fibre Scheme aims to achieve self-reliance in natural fibres including silk, wool, and jute, alongside man-made fibres and new-age fibres.
- The Textile Expansion and Employment Scheme will modernize traditional clusters with capital support for machinery, technology upgradation, and common testing and certification centres.
- A National Handloom and Handicraft programme integrates existing schemes to provide targeted support for weavers and artisans.
- The Tex-Eco Initiative promotes globally competitive and sustainable textiles and apparels.
- Samarth 2.0 modernizes the textile skilling ecosystem through collaboration with industry and academic institutions.
Additional Budget Measures for Textile Sector
Sitharaman also proposed establishing mega textile parks in a "challenge mode" that could focus on value addition to technical textiles. Furthermore, the Mahatma Gandhi Gram Swaraj initiative will strengthen khadi, handloom, and handicrafts through global market linkage, branding, and streamlined training and skilling support.
Immediate Challenges Remain Unaddressed
Despite these long-term modernization efforts, industry experts and government officials acknowledge that the Budget measures may not sufficiently address immediate liquidity challenges. Textile exporters have been requesting the government to share at least 25% of the tariff burden to maintain their presence in the US market, a concern that remains unaddressed in the current proposals.
The Apparel Export Promotion Council has warned in a letter to Vice President C P Radhakrishnan that sustained US tariffs without a trade deal could cause permanent damage to India's market share, resulting in significant job losses as the sector has "no further shock-absorption capacity left."
Potential Long-Term Impact Scenarios
Research from the Indian Institute of Foreign Trade paints a concerning picture of potential outcomes. According to Professor Sunitha Raju's report, sustained 50% US tariffs could result in a $6.6 billion or 67.8% fall in US import demand for Indian textile and apparel products.
- The negative effect would be highest for fibre (-95.8%), followed by yarn (-87.5%) and fabrics (-82.9%)
- In absolute values, made-ups and apparel would account for $5.7 billion or an 85% fall in exports to the US
- Even if the additional 25% tariff related to Russian oil purchases is rolled back, the negative demand effect would still be about $2.1 billion, translating to a 21.6% fall across product groups
As the textile sector navigates these turbulent waters, the effectiveness of the Budget's modernization push in countering the immediate tariff pressures remains a critical question for India's export economy and employment landscape.
