Workers use sand paper on jeans to fade colour in a garment manufacturing unit on the outskirts of Ahmedabad.
Credit: Reuters photo
Bengaluru: Revenue growth of India’s readymade garment (RMG) industry is set to nearly halve year-on-year this fiscal as the imposition of 50 per cent tariffs by the US on its imports from India comes into effect from August 27, 2025.
That, coupled with a decline in profitability, will impact credit metrics for industry players. The impact will vary by company, some of which get more than 40 per cent of their revenue from the US.
An analysis of over 120 RMG makers with total revenue of about Rs 45,000 crore, by Crisil Ratings, indicates as much. RMG exports totalled approximately $16 billion last fiscal and accounted for about 27 per cent of the RMG sector’s revenue.
A third of the exports were to the US. The 50 per cent tariff puts India at a distinct disadvantage compared with competing nations like China, Bangladesh and Vietnam.
According to a US notification, the duties are effective with respect to products of India that are entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 am Eastern Daylight Time on August 27, 2025 (9:31 AM IST August 27).
Manish Gupta, Deputy Chief Rating Officer, Crisil Ratings says, “If the tariffs hold, RMG exports to the US will see a sharp decline. In the first quarter of this fiscal, total exports from India rose 10 per cent year-on-year to $4 billion, with exports to the US recording a 14 per cent growth during the same period.
The trend is expected to sustain through August 26 till the enhanced tariffs kick in. Post 50% tariffs, Indian exports to the US may be minimal, despite limited capacity of competing nations in value-added garments and lead time taken by big-box retailers in the US to re-align their sourcing arrangements. Overall, we expect the share of the US in India's RMG exports to fall from 33 per cent last fiscal to 20-25 per cent this fiscal.”
This would mean players will have to realign trade with other major export destinations—the European Union (EU), United Kingdom (UK) and United Arab Emirates (UAE), which together form 45 per cent of India’s exports for fiscal 2025. The recently signed Free Trade Agreement (FTA) with the UK is also likely to result in higher exports to that country from the end of this fiscal, providing some relief to the industry.
Gautam Shahi, Director, Crisil Ratings, said, “The domestic market for RMG, accounting for three-fourths of the sector's revenue, will continue to see steady revenue growth of 8-10 per cent this fiscal, fuelled by economic growth, interest rate cuts, and tax reductions. This, in turn, will cushion the tariff blow and spur overall growth at the sector level, but at a slower pace than last fiscal.”
Weaker revenue growth and tariff-driven competitive disadvantage in the US will impact profitability of India manufacturers. Profitability of RMG exporters dependent on the US could contract 300-500 basis points as they will bear the tariff brunt.
Further, potential oversupply in the domestic market may also impact domestic margins to some extent. Therefore, profitability at the industry level may dip 50-150 bps this fiscal.
This will also pare down players’ credit metrics, with interest coverage dipping to 3.5-3.7 times this fiscal from 3.9 times last fiscal, and financial leverage rising to 3-3.1 times from 2.78 times. The deterioration in the credit metrics will be sharper for manufacturers whose exposure to the US markets is greater than 40 per cent of their revenues.
In case the tariffs are returned to the previously announced level of 25 per cent, India could maintain its competitive advantage, given its higher presence in the value-added garments segment compared with its rivals. That would then limit the impact on Indian exports to the US, Crisil Ratings said.