Blog Post by: Karun Tyagi

Effective August 1, 2025, the United States imposed a 25% reciprocal tariff on Indian textile and apparel (T&A) exports, marking a major shift in trade dynamics

Unlike earlier assumptions, this 25% tariff stacks on top of existing MFN duties, which average 8% across T&A product categories (garments 10–12%, home textiles 6–8%, fabrics 5–8%).

This pushes the effective tariff burden to 33% on most Indian T&A exports today.

Further, if no trade deal is reached by August 27, 2025, a penalty tariff of an additional 25% will take effect — again stacking on top of both the MFN base and reciprocal duty — driving the effective tariff up to 58% on many categories.

Why This Matters

The U.S. accounts for nearly 29% of India’s $37 billion T&A exports in FY 2024 — roughly $10 billion annually. With this sudden escalation in duties, Indian exporters now face:

• Eroding cost competitiveness versus peers like Vietnam (20%) and Bangladesh (20%).
• Margin pressures across apparel and home textile categories.
• Risks of order migration to alternate low-tariff destinations.

Tariff Breakdown — Updated Calculation

Tariff Component	Approx. Rate	Effective Total
Base MFN Duty (Average)	8%	8%
Reciprocal Tariff (from Aug 1)	+25%	33%
Penalty Tariff (from Aug 27)	+25%	58%

Fortunately, India’s robust network of Free Trade Agreements (FTAs) offers a powerful solution. While the UK-India FTA has garnered recent headlines, this article focuses on other critical partnerships and how they can strategically benefit Indian T&A players by offering a crucial advantage in the form of zero-duty access.

India–UAE CEPA (Effective May 2022)

The India–UAE Comprehensive Economic Partnership Agreement (CEPA) provides zero-duty access for nearly 90% of Indian T&A lines. Before CEPA, these products faced duties of around 5%. The agreement immediately eliminated tariffs on cotton garments, synthetic textile blends, and home textiles like towels and bed linen, making Indian products more competitive against those from nations like Pakistan, Bangladesh, and China.

• Export Opportunity: In FY2024, India’s T&A exports to the UAE reached approximately $1.8 billion, with apparel and home textiles being major contributors. The CEPA has significantly improved India’s cost advantage, leading to a strong performance in this key market.
• Strategic Note: The UAE is a crucial re-export hub for Europe, the Middle East, and Africa. Indian T&A firms can leverage this route for wider market access through Dubai-based logistics and distribution networks.

India–Australia ECTA / CECA (Interim from Dec 2022)

The India–Australia Economic Cooperation and Trade Agreement (ECTA) grants zero-duty access for 96% of Indian goods, including most T&A products. The full elimination of duties is expected by 2026 under the Comprehensive Economic Cooperation Agreement (CECA).

• Export Potential: India’s T&A exports to Australia have already shown significant growth, reaching approximately $532 million in FY2024. With full CECA implementation, exports are projected to cross $1 billion in the next three years, driven by rising demand for Indian ethnic wear, cotton garments, and technical textiles among Australian retailers.
• Strategic Note: The ECTA is empowering Indian brands to penetrate the premium Australian market without the burden of duties, facilitating direct relationships with consumers and retailers.

India–Japan CEPA (Since 2011)

Under the India–Japan CEPA, select Indian garments and value-added textiles enjoy reduced duties or duty-free access. Japanese importers are known for their stringent demand for high consistency, eco-certifications, and precision, making this market a perfect fit for Indian exporters with a premium focus and advanced manufacturing capabilities.

• Export Potential: India’s total T&A exports to Japan in FY2024 were approximately $354 million. While the value is not as high as with other partners, the market offers a stable, high-value destination for specialized products like innerwear, technical textiles, and eco-friendly garments.

India–South Korea CEPA (Since 2010)

The India–South Korea CEPA has brought key duty reductions on synthetic textiles and value-added garments. South Korea is a major consumer of synthetic blends and performance apparel, a segment where India’s manufacturing capabilities are rapidly growing.

• Export Potential: India’s total T&A exports to South Korea were around $280 million in FY2024, with a significant portion comprising textile inputs. The CEPA creates a long-term opportunity for India’s Surat and Bhilwara textile clusters to become key suppliers for South Korea’s burgeoning performance-wear market.

India–Sri Lanka FTA

Though a smaller destination for finished products, Sri Lanka is a vital partner for India’s textile supply chain. The FTA provides duty-free access for garments and cotton fabrics under quota mechanisms. Indian mills primarily export yarn and fabric to Sri Lankan garment manufacturers for local value-addition.

• Export Potential: India’s total T&A exports to Sri Lanka in FY2024, including cotton and fabrics, were over $600 million. This highlights India’s critical role as a raw material supplier to Sri Lanka’s robust garment manufacturing industry.

Comparative Snapshot (FY2024 Approximate Estimates)

FTA Partner	Total T&A Export FY24*	Duty Benefit on T&A	Key Segments for Growth
🇦🇪 UAE	$1.8 billion	0% (post-CEPA)	Cotton garments, made-ups, carpets
🇦🇺 Australia	$532 million	0% by 2026 (CECA)	Ethnic wear, cotton casuals, technical textiles
🇯🇵 Japan	$354 million	Reduced via CEPA	Innerwear, technical apparel
🇰🇷 South Korea	$280 million	Reduced via CEPA	MMF, synthetics, performance apparel
🇱🇰 Sri Lanka	$600+ million	Zero-duty under quota	Cotton, fabrics (for value-addition)

Strategic Playbook for Indian Exporters

1. Shift from U.S.-centric to a Multi-Market Play: The new U.S. tariffs underscore the volatility of over-reliance on a single market. FTAs provide stability and margin protection, making these diversified markets more attractive.
2. Elevate Product Sophistication: To succeed in demanding markets like Japan, Korea, and Australia, focus on higher value-added products, including technical textiles, functional finishes, and sustainable fashion initiatives.
3. Leverage FTAs as Operational Levers: FTAs are no longer just policy documents. They are tools that must be actively used for market penetration, cost reduction, and business expansion.
4. Strengthen Rules of Origin (RoO) and Compliance Readiness: Proper documentation and adherence to RoO under each FTA are paramount to effectively claim and maximize tariff benefits.

Closing Thoughts

In a volatile global trade landscape, India’s FTAs beyond the UK are underutilized assets. By rebalancing their strategy and actively focusing on these FTA-linked corridors—especially UAE, Australia, Japan, and South Korea—Indian exporters can unlock significant value, build long-term partnerships, and, most importantly, secure a more resilient and diversified future for Indian T&A exports.