India's Textile Industry Is Making A Comeback? Here's Why Trade Deals Could Change Everything

Brokerages believe the upcoming free trade agreements with the UK and the European Union could be among the biggest catalysts for India's textile industry.

India is already among the world's leading exporters of home textiles, bed linen and bath products to the US.

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India's textile industry is back in focus after several challenging years, with analysts pointing to improving global demand, favourable trade policies and government support as key drivers of a potential turnaround. As the government works towards expanding the sector into a $350 billion market by 2030, brokerages believe the industry's outlook has strengthened considerably.

According to a report by Financial Express, experts expect the recovery to be supported by rising exports, upcoming free trade agreements (FTAs) with the UK and the European Union, and a weaker rupee that has improved India's competitiveness in global markets.

India is already among the world's leading exporters of home textiles, bed linen and bath products to the US. The proposed trade agreements with the UK and the EU are expected to provide Indian exporters with a duty advantage over competitors such as Pakistan and Bangladesh, while changing global supply chains could also increase demand for Indian garments, fabrics and yarn.

Why The Sector Is Showing Signs Of Recovery

Demand across the textile industry has started improving as inflation eases and tariffs decline in key global markets. After facing multiple headwinds in recent years, the industry is beginning to see a gradual revival.

Domestic brokerage Emkay expects the sector's revenue to grow at a compound annual growth rate (CAGR) of 21 per cent through FY28, while profit is projected to grow by 45 per cent over the same period. The brokerage said it believes India has reached an inflexion point to reclaim its position in the global textile market.

Citing Motilal Oswal, the report noted that the sector went through a difficult phase between FY22 and FY26 because of high inflation, weak consumer spending, retailer inventory corrections, elevated freight costs and tariff uncertainties following the post-pandemic demand surge. However, it said demand has gradually stabilised from CY25 onwards as inventories normalised, inflation eased, and tariffs moderated across major textile-exporting countries.

FTAs And Lower Tariffs Could Strengthen Exports

Brokerages believe the upcoming free trade agreements with the UK and the European Union could become one of the biggest catalysts for India's textile industry.

According to Emkay, the European Union represents one of the largest opportunities for Indian exporters, with the bloc importing more apparel each year than the US. India's share of apparel exports to the EU has already increased to around 30 per cent from nearly 25 per cent in FY22.

The brokerage added that trade agreements with the UK and the EU could remove import duties of around 12 per cent on Indian textile and apparel products. This would allow Indian exporters to compete more effectively with countries such as Bangladesh and Vietnam.

Oswal also highlighted India's improving position in the US market. It noted that additional US tariffs, which had increased sharply during 2025, have now been reduced to around 10 per cent. Competing sourcing nations such as Bangladesh and Indonesia continue to face tariffs of 19 per cent, while Vietnam faces a 20 per cent tariff. According to the brokerage, this has placed India on a broadly level playing field with its major competitors in the US market.

China+1 Strategy Opens Fresh Opportunities

The ongoing China+1 sourcing strategy continues to create opportunities for Indian textile exporters as global brands diversify their supply chains.

Oswal said India is well placed to benefit as international retailers reduce their dependence on China and increasingly work with large, compliant suppliers. Despite this opportunity, India currently accounts for only around 4 to 5 per cent of global apparel trade, leaving significant room for market share gains.

The brokerage also pointed to India's large spinning capacity, abundant cotton availability, competitive labour costs and expanding base of large exporters as factors that make the country an attractive sourcing destination. It further noted that restrictions imposed by the US and Europe on cotton sourced from China's Xinjiang region have created additional opportunities for India.

Political instability in Bangladesh and Pakistan has also strengthened India's position within the global textile supply chain, according to the brokerage.

Fresh Investments And Government Support Add Momentum

The industry has entered a new investment cycle, with companies expanding capacities across garments, technical textiles, man-made fibres and other value-added products.

Companies including Gokaldas Exports, Arvind, Pearl Global, KPR Mill, Welspun Living and Vardhman Textiles have announced expansion plans aimed at capturing rising global demand.

Government initiatives such as the PM MITRA scheme, the Production Linked Incentive (PLI) scheme and ATUFS are also supporting fresh investments across the industry. Motilal Oswal expects larger exporters to continue gaining market share as global brands increasingly consolidate sourcing with fewer suppliers to simplify compliance and auditing requirements.

With US retail inventories returning to normal levels and demand showing signs of improvement, the brokerage expects Indian exporters to receive stronger order inflows, achieve better capacity utilisation and report improved profitability.

West Asia Risks Remain A Short-Term Concern

Despite the positive outlook, Emkay cautioned that the ongoing conflict in West Asia could temporarily affect industry margins through higher energy and logistics costs.

However, the brokerage expects profitability to recover once conditions stabilise. It added that India's strong domestic market, favourable dollar-rupee exchange rate and healthier corporate balance sheets should help companies absorb future shocks.

Overall, brokerages believe India's textile sector is entering a stronger growth phase, supported by improving tariff competitiveness, favourable trade agreements and the continuing China+1 sourcing shift. Government initiatives, including the PLI scheme, PM MITRA parks and export incentive programmes such as RoSCTL and RoDTEP, along with the rupee's depreciation of around 11 per cent against the US dollar over the past year, are also expected to strengthen export competitiveness and improve earnings for export-oriented textile companies.