India’s textile sector is poised for significant transformations as the nation navigates a complex landscape of international trade challenges and opportunities. With the European Union implementing a new carbon tax on imports and consumption in Europe slowing, India’s external trade faces mounting pressures. Additionally, the incoming US administration under President-elect Donald Trump is expected to push for lower tariffs, which could affect India’s trade dynamics.
Despite these hurdles, there are positive developments on the horizon. A recent disengagement at the border with China and a bilateral meeting between Prime Minister Modi and President Xi Jinping has sparked optimism among economists regarding increased manufacturing investments from China to India. Such investments could enhance India’s export potential to developed markets.
In the current fiscal year, India’s services exports have shown impressive growth, rising 14.5% to reach $252 billion from April to November. However, merchandise exports have only seen a modest increase of 2%, totalling $284 billion, while imports surged by 8%. The depreciation of the rupee has made exports more lucrative in local currency terms but has also escalated import costs, contributing to a record trade deficit of $37.84 billion in November.
The ongoing US-China trade tensions are reshaping global supply chains, creating both challenges and opportunities for India’s textile industry. As US imports from China have decreased significantly since 2017, India has managed to increase its exports to the US by $36.8 billion, particularly in textiles, electronics, and pharmaceuticals. This shift underscores the necessity for India to bolster its domestic supply chains and reduce reliance on Chinese intermediates.
Government initiatives like Atmanirbhar Bharat aim to enhance local manufacturing capabilities and improve export competitiveness across key sectors, including textiles. A senior commerce ministry official noted that efforts are underway to improve infrastructure and streamline business processes to position India as a global manufacturing hub.
However, experts warn that if the US imposes high tariffs on China, India could face collateral damage as these tariffs might inadvertently apply to Indian exports. Moreover, many micro, small, and medium enterprises (MSMEs) in the textile sector heavily depend on imported raw materials from China. Increased input costs due to escalating US-China tensions could threaten their profitability.
Despite these challenges, the Indian government is focusing on diversifying export destinations and sectors. Identified sectors such as textiles, chemicals, pharmaceuticals, electronics, automotive, and industrial machinery are pivotal for achieving India’s ambitious goal of $1 trillion in manufacturing exports by FY30.
As India seeks to navigate these complexities and capitalize on emerging opportunities in global trade, strengthening its textile sector will be crucial for economic resilience and growth in an evolving international landscape.
