US Tariff Cut Boosts India's Apparel Exports, But Diamonds Still Struggle

The rating agency highlighted that the downward reset in US tariffs to 18 per cent from the elevated levels seen in 2025 represents a "relatively smooth landing for Indian exporters at a time when global trade dynamics remain fluid." This change follows a US-India joint statement that lowered reciprocal tariffs from 25 per cent to 18 per cent. Additionally, an additional ad valorem duty of 25 per cent on Indian imports, which had been introduced in August 2025 in relation to Russian oil imports, has been eliminated by a US Presidential Executive Order.

On the impact of previous trade barriers, Jitin Makkar, Senior Vice President and Group Head - Corporate Ratings, ICRA Limited, said in the release: "The sharp increase in US tariffs last year had been particularly debilitating for export-oriented companies in sectors such as textiles, cut and polished diamonds, and leather and leather products. Apparel exporters, for instance, saw their margins compress by nearly 200 basis points over the past couple of quarters as they were compelled to extend discounts to US buyers to retain volume share."

ICRA's press release explained that the apparel sector's return to a stable outlook is rooted in a projected recovery. While revenues are still expected to contract by 3-5 per cent in FY2026, they are now forecast to rebound by 8-11 per cent in FY2027. This is a significant improvement from the previous forecast, made in September 2025, which projected deeper declines of 6-9 per cent for FY2026 had the high tariffs persisted.

Regarding the diamond industry, the press release detailed why the outlook remains negative despite the tariff relief. ICRA noted that the sector has been impacted by the rise of lab-grown diamonds, which have gained consumer acceptance and hurt the pricing of natural diamonds. While natural diamond exports are expected to expand by 6-8 per cent in FY2027 due to the tariff removal and new "BIS labelling" intended to distinguish them from lab-grown alternatives, overall export values remain far below the USD 24 billion peak seen in FY2022.

Looking at the broader trade landscape, Jitin Makkar added: "Against this backdrop, the lowering of US tariffs, as a prelude to the formal signing of the US-India trade agreement in due course, as also the anticipated implementation of the India-EU free trade agreement next year, besides other bilaterial trade pacts, augur well for a gradual strengthening of India's manufacturing export growth over the medium term."

ICRA also noted that while the relief is meaningful in the near term, Indian corporations are likely to adopt geographical diversification as a long-term risk mitigation strategy to hedge against an "increasingly volatile and geopolitically-influenced trade environment."

- ANI