Textile trade: India-UK FTA may offset US losses; CareEdge Ratings sees export realignment ahead

The losses faced by Indian textile exporters due to steep reciprocal tariffs imposed by the United States may be cushioned by rising exports to the United Kingdom under the recently concluded India-UK Free Trade Agreement (FTA), CareEdge Ratings said in a report.

The ratings agency noted that ongoing negotiations with the European Union could further open new avenues, marking a strategic realignment of India’s textile trade landscape, news agency ANI reported.


Calling the India-UK FTA a “game changer” for the readymade garments (RMG) and home textile sectors, the report said the deal creates a level-playing field for Indian exporters in the $23 billion UK import market.

“India’s textile export is expected to decline by 9-10 per cent in CY26. With expected loss of revenue and partial tariff absorption, PBILDT margin of Indian RMG and home-textile exporters is expected to decline by 300-500 bps,” said Akshay Morbiya, Assistant Director at CareEdge Ratings.

Morbiya added that the extent of decline will depend on how effectively exporters negotiate pricing with US buyers to retain volumes.

Krunal Modi, Director at CareEdge Ratings, said government support measures—including the removal of 10 per cent import duty on cotton until December 31, 2025, export incentives, interest subsidies, and outreach to 40 new markets—will help bolster competitiveness.

He further noted that losses in RMG and home-textile products could be compensated by growth in cotton yarn and fabric exports, where India holds a backward integration advantage over competing nations. “Extent of benefit from India-UK FTA and potential trade agreement with EU remain key monitorable,” Modi added.

The United States has historically been India’s largest textile export destination, accounting for 28-29 per cent of shipments over the past four years. Cotton-based textiles, primarily home furnishings and apparel, made up 90 per cent of these exports in CY24. Other major markets include Bangladesh (7 per cent), the UK (6 per cent), the UAE (5 per cent), and Germany (4 per cent).

The steep 50 per cent US tariffs on Indian goods came into effect on August 27. A day later, the Commerce Ministry said the move would have a short-term impact on sectors like textiles, chemicals, and machinery but asserted that the long-term effect on overall trade and GDP will be limited.