Blog Post by: Karun Tyagi

Recap: Tariff Crisis Trigger

“As of August 1, 2025, the U.S. imposed a 25% reciprocal tariff on Indian textile and apparel (T&A) exports. This was followed by an additional 25% penalty tariff effective August 27, in response to India’s purchase of Russian oil. Combining these with base MFN duties (6–12%), Indian exporters are now facing effective U.S. tariffs in the 56–62% range.”

The Indian Government’s Counter-Measures: A Summary

Policy Initiative	Status	Target Outcome
Cotton Import Duty Exemption	Extended till Dec 2025	Lower input costs for exporters
40-Country Export Push	Initiated via MEA + EPCs	Diversify market dependency from U.S.
Liquidity Support (Non-subsidy)	Under evaluation	Prevent default and stabilize cash flow
Tariff-Sharing Mechanism	Proposed by FIEO	Split 50% duty – 25% each by govt/exporter
Oil Levy Retaliation	Holding trade talks	Leverage in U.S. negotiation
Trade Mission Activations	High-level consultations	Accelerated B2B matching

Deep Dive: Will These Measures Work?

Cotton Duty Exemption: Immediate Relief

Extension of zero-duty cotton imports (HS 5201) until Dec 31, 2025 is a timely move, reducing raw material costs for the highly cotton-dependent Indian apparel sector.

40-Country Outreach: Strategic But Slow

The government is now actively promoting T&A exports to:

• UK, Germany, France, Japan, South Korea
• UAE, Australia, Canada, Mexico, South Africa

These are either FTA-aligned or low-tariff-accessible markets, but rechanneling capacity takes time—exporters need buyer access, marketing support, and regulatory compliance aid.

Liquidity Measures & Tariff-Sharing: Promising if Fast

FIEO’s proposal to split the 50% tariff burden equally between the government and exporters could limit the effective impact. However, this must:

• Be implemented quickly (within 30 days)
• Avoid WTO non-compliance
• Be administratively simple

Meanwhile, Commerce Ministry’s liquidity package is still under review. Exporters face immediate cash-flow stress due to order revisions and margin pressure.

Negotiation Tactics: A Calculated Risk

India’s stance of not resuming trade talks unless the U.S. removes the 25% oil levy shows strength. But without a backup resolution strategy, Indian exporters are losing vital access during the peak festive season buying window.

Are FTAs the Answer?

India’s FTAs offer alternate channels for T&A growth:

• UAE CEPA: Covers 90% of tariff lines including T&A
• Australia (ECTA): Zero duties for almost all textile goods
• Japan: Long-standing CEPA with moderate uptake
• UK (recent): Removes 99% of tariffs on Indian T&A exports

These FTAs need aggressive activation through:

• Export credit lines
• Market access campaigns
• Trade shows and buyer-seller meets

Recommendations

For Policymakers

• Fast-track tariff-sharing scheme and notify by September 2025
• Announce a non-subsidy working capital bridge loan program
• Reassess oil levy stand with options for T&A-specific resolution
• Appoint Export Promotion Task Force for U.S. substitution markets

For Exporters

• Deepen engagement in UAE, UK, and Australia via FTAs
• Reprice and restructure contracts with key U.S. buyers
• Explore EU’s GSP+ benefits and sustainability positioning
• Build B2B visibility through digital platforms and new sourcing fairs

Final Verdict

India’s countermeasures are well-intentioned and strategically aligned, but the clock is ticking. Without swift implementation of financial support, many MSME exporters in T&A risk collapse. On the flip side, those who pivot fast—leveraging FTAs, cost relief, and alternate markets—can emerge stronger.

This isn’t just a tariff challenge; it’s a restructuring opportunity. But execution will define whether India’s textile story bounces back or unravels.