Diversifying Exports

With nearly 40 per cent of India’s textile exports headed to the US, market volatility there poses serious risks. Slowing demand and shifting trade dynamics make over-reliance unsustainable. It’s time India broadens its export horizon—tapping emerging markets to build resilience and ensure long-term growth.

The US decision to impose 50 per cent tariffs on Indian textile and apparel imports in August 2025 has become a watershed moment for the industry, exposing its longstanding dependence on a single dominant market. With nearly a third of India’s textile exports tied to the US, the sudden escalation has triggered widespread disruption—order cancellations, shrinking margins, and fears of losing buyers permanently. Yet, amid the turbulence, the crisis has also pushed the sector to confront a long-delayed priority: diversifying into new geographies. As industry leaders assess both risks and opportunities, a strategic shift toward alternate global markets is now unavoidable.

Emerging and Alternative Export Markets

The 50 per cent tariffs imposed by the United States in August 2025 have sent shockwaves through India’s textile and garment manufacturing sector. As the world’s largest market for textiles and apparel, the US accounts for nearly 28 per cent of India’s textile and apparel exports, making it by far the country’s biggest export destination in this sector. The immediate impact has been devastating—order cancellations, margin pressures, price disadvantages, and the looming threat of permanently losing customers have forced the industry to confront an uncomfortable reality.

“There has been a need to look beyond the U.S. market, and in response to these tariffs, India is now targeting about 40 new markets, including some EU countries, the UK, Japan, South Korea, and several others.”

Dr Gurudas Aras, Independent Director

Dr Gurudas Aras, Independent Director, frames the magnitude of the crisis and the strategic pivot now underway: “The impact has been quite severe in terms of cancellations of orders, increased margin pressures, price disadvantages, and even the risk of permanently losing a customer. Hence, there has been a need to look beyond the U.S. market, and in response to these tariffs, India is now targeting about 40 new markets, including some EU countries, the UK, Japan, South Korea, and several others.”

These 40 countries collectively represent a $590 billion market opportunity where India’s current share stands at a mere 4-5 per cent. The potential is staggering, particularly in markets like Japan, where India holds just 1 per cent share compared to China’s commanding 54 per cent. This disparity underscores both the challenge and the opportunity that lie ahead for Indian exporters willing to invest in understanding new markets, developing quality products, and exercising patience.

Rahul Mehta, Chief Mentor of the Clothing Manufacturers Association of India (CMAI), offers a sobering assessment of the industry’s reactive tendencies. “The fact that Indian exporters need to diversify their market basket is a no-brainer. They have to do that. Unfortunately, like many events in the past with Indian exporters, we are only reacting to a given impetus or a given situation. This strategy of diversification should have happened, and should have taken place, many years ago. But our tendency is to be satisfied and complacent with what we have on hand. And obviously, the American market was the most attractive option available.”

Mehta raises a critical question that exporters now face: whether to diversify into other export markets or pivot toward tapping India’s growing domestic market. This strategic choice will define the sector’s trajectory in the coming years.

“This strategy of diversification should have happened, and should have taken place, many years ago. But our tendency is to be satisfied and complacent with what we have on hand.”

Rahul Mehta, Chief Mentor, CMAI

The tariff crisis, despite its severity, has catalysed some positive developments that had been languishing in bureaucratic delays. Prashant Agarwal, Joint Managing Director at Wazir Advisors, highlights how external pressure has accelerated trade negotiations. “Some of the positives of what the tariffs have done are that the UK FTA, which was taking so much time, got signed and now has to be ratified. The EU FTA, which we were thinking would take 2–3 years, will get signed by this year and then will get ratified fast.”

Beyond these European markets, Agarwal points to several substantial, largely untapped opportunities. Japan represents a $25 billion textiles and apparel market, while Canada accounts for $12 billion, Australia $10 billion, and Russia $8 billion. However, penetrating these markets requires more than just showing up. Each has distinct cultural preferences and product requirements that Indian manufacturers must understand and adapt to. Russia, for instance, is welcoming Indian exporters but requires workwear and winter wear—products that India’s current manufacturing base isn’t equipped to produce at scale. The lesson is clear: diversification isn’t simply about finding new buyers for existing products; it demands genuine market research, product development, and long-term commitment.

“Some of the positives of what the tariffs have done are that the UK FTA, which was taking so much time, got signed and now has to be ratified..”

Prashant Agarwal, Joint Managing Director, Wazir Advisors

Not all Indian exporters are equally vulnerable to the US tariff shock. Birendra Nath Bandyopadhyay, Executive Director of Orbit Exports, represents a segment of the industry that had already achieved geographic and product diversification. “One thing that Orbit exports, We are a small company, but our product mix and market mix, we have a quite a good balance, and we are not very much US-dependent. But yeah, some one product category, there are U.S. dependencies there. But we are… we have our presence in Europe, and the domestic also.”

Orbit Exports has carved out a niche in high-value, non-commodity textiles—jacquards, high-end ladies’ bottoms, and synthetic-based specialty products. By focusing on value rather than volume, and serving markets in Europe, the Middle East, and domestically, the company has built resilience into its business model. Bandyopadhyay’s company is doubling its capacity this year, confident that the US tariff impact “cannot extend more than 6 months, because of U.S. own benefit already.” This optimism, grounded in product differentiation and market diversification, offers a template for other exporters.

“One thing that Orbit exports, We are a small company, but our product mix and market mix, we have a quite a good balance, and we are not very much US-dependent.”

Birendra Nath Bandyopadhyay, Executive Director, Orbit Exports

Sanjay K Jain, Managing Director of TT Limited, brings a frontline exporter’s perspective to the discussion, and his assessment is considerably more sobering. “This temporary closure of USA, hopefully temporary, has rung a strong bell across the industry. Many people feel those only exporting to US are going to be impacted, but it doesn’t really happen that way. A US guy who was exporting will probably supply to an Arvind. So Arvind will cut down another vendor who is probably a bit lower in categorisation, so the whole industry finally gets impacted, especially when $10 billion moves out from an industry.”

Jain emphasises that the ripple effects touch everyone in the ecosystem. Even if tariffs are eventually reduced, rebuilding momentum will take time, and approximately 50 per cent of exporters have maintained dialogue with US buyers in hopes of shipping once tariffs moderate. However, Jain challenges the narrative that US tariffs alone created this crisis, pointing to a longer-term decline that the industry has failed to address. Post-COVID, India achieved $20 billion in apparel exports, but that figure dropped to $15-15.5 billion and has stagnated. Over the past decade, India’s garment exports in dollar terms have actually fallen, while China—despite losing market share—has increased its absolute export value, and countries like Vietnam and Bangladesh have surged ahead.

“This temporary closure of USA, hopefully temporary, has rung a strong bell across the industry. Many people feel those only exporting to US are going to be impacted, but it doesn’t really happen that way.”

Sanjay K Jain, Managing Director, TT Limited

India already has free trade agreements with Japan, Korea, and Australia (the latter more than two years old), yet has failed to make meaningful inroads. Jain’s diagnosis is blunt: “We should be going to new markets. I think so. Everyone knows the billion dollars of each market. China is practically there across the world. Any market we talk of, whether it’s Latin America, Africa, Australia, China is everywhere. India should be doing it, but while it is not… Friends, it’s not just US, which is going to force us.”

The fundamental challenge, Jain argues, is that there is no global shortage of garment manufacturing capacity. In a well-supplied market, buyers need compelling reasons to switch suppliers—better prices, superior quality, or strong references. He advocates for government intervention through focused incentives for priority markets, noting that exporters cannot absorb the cost disadvantages on their own. “Price with same quality is something which will attract people. I don’t think so we can do better quality than what they are buying, more or less, and to give better prices on our own is also not easy. So that’s something which I think so the government should think about. There needs to be something more than just talk.”

At the heart of India’s competitiveness problem lies raw material disadvantage, particularly in man-made fibers (MMF). Global demand has shifted dramatically—30 per cent cotton and 70 per cent MMF—driven by the reality that cotton production will not grow significantly. While India’s domestic market has embraced MMF textiles, with manufacturers in Surat supplying the market rapidly, Indian exporters remain hamstrung by quality control orders (QCOs), insufficient domestic manufacturing quality, and raw material costs that undermine export competitiveness. “Some of us have the capacities to meet the quality, but without good raw material, we can’t. Textile margin’s all single digit, so don’t expect anything from it,” Jain concludes.

The path forward demands more than aspirational targets and trade missions. It requires fundamental reforms in raw material competitiveness, sustained engagement with new markets to understand their specific requirements, product innovation aligned with global demand shifts toward synthetic textiles, and potentially government incentives to offset initial cost disadvantages in priority markets. The US tariff shock has created urgency, but whether it catalyses genuine transformation or merely temporary adjustment remains the defining question for India’s textile sector.

Value addition and product diversification

India’s textile and apparel export sector stands at a critical juncture where traditional approaches to manufacturing and market positioning are proving insufficient. The path forward, according to industry leaders, demands a fundamental shift in mindset—from producing what’s convenient to manufacturing what global markets actually need.

Prashant Agarwal, addressing the core challenge of product diversification, argues that India’s perceived limitations are more mental than material. “Product diversification is difficult. Somehow, I don’t agree with that,” he asserts, challenging the industry’s conventional wisdom. While acknowledging India’s competitive disadvantage in polyester compared to China—which dominates with 70 per cent of its exports in synthetic segments—Agarwal points to successful models in Vietnam and Bangladesh that began with garment manufacturing and gradually achieved backward integration. Vietnam, for instance, evolved from 5 per cent textiles and 95 per cent garments to 30 per cent textiles and 70 per cent garments, demonstrating that strategic focus can reshape industrial capabilities.

The transformation Agarwal advocates requires abandoning what he calls the “contractor mentality” in favor of an “industrialist mentality.” “We need to look at things slightly differently. We have to move from a contractor mentality to an industrialist mentality, where we say, okay, I have to make this product. I have to target this market, and for this product, these are my inputs, this is the capability level, this is the training level, this is the right of technology that we need to produce,” he explains. This approach has already yielded results in Tiruppur, where four to five major factories are establishing world-class synthetic knit facilities with capacities of 20-25 tons, working with major players like Reliance and Sanatan.

The home textile sector provides compelling evidence of what targeted excellence can achieve. Indian manufacturers like Trident, Welspun, Himatsingka, and IndoCount have captured 55-60 per cent of the US market in towels and bedsheets, 20 per cent in Europe, and 19 per cent in Australia. This dominance stems from focused expertise in specific product categories. “Because we are capable in a certain product line,” Agarwal notes, markets naturally expand. The lesson is clear: depth of capability in chosen segments matters more than breadth of offerings.

However, a critical chicken-and-egg problem hampers progress. Raw material suppliers hesitate to invest in export-quality inputs when the market appears too small, while manufacturers struggle to scale without reliable domestic supply chains. Agarwal’s solution is straightforward: “You start importing those materials, you have enough market, people will start. Reliance is capable. Sanatan is capable. There are other players who are capable.” The key is creating initial demand through imports, which will eventually compel domestic suppliers to match quality and price.

Rahul Mehta brings the sustainability and compliance dimension into sharp focus, particularly for the MSME sector that comprises 80-85 per cent of India’s textile industry. Leading the Clothing Manufacturers Association of India (CMAI), Mehta confronts a unique challenge: most domestic manufacturers face minimal buyer pressure for sustainability, making it difficult to justify investments that will only become mandatory in the future.

Jain provides ground-level insights into the fabric quality challenge that undermines India’s competitiveness. While Surat can produce filament fabric at prices competitive with China, the quality gap is substantial. Normal-grade fabric requires intensive inspection to eliminate shade variations and knitting defects, and truly flawless fabric costs double the domestic price—immediately eroding competitiveness. “That quality of fabric is very difficult to pass. I need to really inspect every, every, you know, inch of the roll, and take out the material where you have shade variations, you have knitting lines, etc,” Jain notes. The export-grade fabric ultimately costs double what domestic buyers pay, making price competition impossible.

Jain identifies underwear manufacturing as a promising category where India possesses domestic expertise but lacks export-grade machinery. The product doesn’t require man-made fiber, relying instead on cotton and modal, which aligns with India’s strengths. However, the broader challenge remains: Vietnam and Bangladesh strategically opened duty-free input channels, mastered garment manufacturing, and then achieved backward integration with government support—a playbook India has yet to fully adopt.

The premium pricing trap that ensnares many value-addition initiatives draws particular attention. “Value addition means, if you look at premium, again, we’ll be uncompetitive. We should just keep our normal margins, do value addition, establish ourselves, and then start asking for maybe 2 per cent, 3 per cent higher,” Jain cautions. The expectation that value-added products automatically command premium prices has undermined many export initiatives. The strategy must focus on establishing market presence at competitive prices before gradually improving margins.

Birendra Nath Bandyopadhyay, with two decades in technical textiles, highlights the innovation deficit constraining India’s higher-value segments. Technical textile demand in India vastly exceeds domestic production—perhaps by factors of 20 to 50—leaving the market flooded with Chinese imports. “There’s huge demand in India, huge, and actually, the production is not even 1/20th or 1/50th of that requirement,” he observes. The root cause is India’s lack of true innovation culture and polymer development capabilities.

The technical textile opportunity remains largely untapped because India focuses on volume-based products like home textiles rather than value-based specialties. “To reduce your carbon footprint, whatever Mr. Mehta was telling, we have to do certain products, which will be higher value, low environmental impact, and you’ll give a lot of foreign currencies you can earn,” Bandyopadhyay argues. Yet essential components—quality jet dyeing machines, polyurethane, membranes, and proper microdenier yarns needed for high-end windcheaters—must all be imported from China or Korea, making competition with those countries nearly impossible.

The machinery gap compounds the challenge. Even basic equipment like quality jet dyeing machines isn’t available domestically, forcing manufacturers to import from the very countries they’re trying to compete against. This dependency extends to specialized yarns and technical components, creating a structural disadvantage that innovation alone cannot overcome without substantial infrastructure investment.

Building stronger foundations for export growth

As Indian textile manufacturers chart their course toward emerging markets, the conversation inevitably turns to the infrastructure that will support this expansion—supply chain resilience, technological adoption, and the delicate balance between scale and flexibility. Industry leaders agree that while India has historically dominated cotton-based manufacturing, the landscape is evolving rapidly, particularly in man-made fiber production.

Dr Gurudas Aras opened the discussion with measured optimism about India’s MMF trajectory, acknowledging that while certain machines and fibers remain unavailable domestically, the sector is taking deliberate steps forward. He expressed confidence that within three to five years, India will significantly increase its share in MMF exports, signaling a diversification beyond the country’s traditional cotton stronghold.

Technology as Service Differentiator: Agarwal, bringing his operational expertise to bear, reframed the technology conversation in compelling terms. The real competitive advantage, he argued, lies not in machinery acquisition but in service delivery. His observations from recent factory visits, including interactions with major players like Trident, revealed a fundamental truth about manufacturing competitiveness in the modern era.

“It’s not the difference in terms of machines which matters. Everybody can buy machines, but how you provide the service becomes more important,” Agarwal emphasized. “Service comes through, whether it is AI, distillation, that makes the whole difference between one company to the other company.”

He illustrated this with concrete examples from the production floor. Digital printing technology has revolutionized product development cycles, replacing the limitations of rotary printing with unprecedented design finesse. Tools enabling AI-driven design, rapid sampling, and customized product development now allow manufacturers to meet fast fashion demands with agility. But the critical gap, Agarwal noted, remains in organizational adoption and workforce training. Owners may decide on rapid technology adoption, but implementation falters when employees lack proper training.

“Adoption, training, and then using everything to service the buyer is the key in this supply chain resilience,” he stated. “I think it’s more of a service industry we are talking about. So this is what we have to keep the mantra, and I can assure you, that will be the differentiation for future in next one decade.”

Aras reinforced this perspective, noting that AI and machine learning tools entering the business will ultimately drive improvements in productivity, efficiency, and quality—the true differentiators for profitability in competitive markets.

The MSME Challenge: Mehta, representing the Clothing Manufacturers Association of India, brought a contrarian yet pragmatic voice to the scale debate. He challenged the prevailing industry and government assumption that export success requires large-scale operations, pointing to a fundamental mismatch in policy design.

“MSMEs have limited resources, that’s why they are MSMEs,” Mehta observed. “Exports today does require a fairly large inputs in terms of investments, in terms of plant and machinery, in terms of adopting the latest technology, and so on.”

He proposed several collaboration models to bridge this gap: the Japanese aggregator system where one large exporter coordinates production across multiple smaller MSMEs; cluster systems that allow geographic proximity to create integrated supply chains; and India’s homegrown cooperative society model. Not all experiments will succeed in garments, he acknowledged, but experimentation remains essential.

Aras interjected with a defense of the revised PLI scheme, noting that investment thresholds have been considerably reduced from 1-3 billion to 500-250 million, with productivity thresholds similarly lowered to accommodate middle-scale industry. However, Mehta pressed the point by asking Agarwal directly about the practical implications.

Agarwal’s response grounded the debate in concrete terms: achieving the 500 million investment threshold requires approximately 1,000 machines, and the PLI scheme includes building and miscellaneous fixed assets, not just machinery. The scale of required investment, even under revised terms, remains substantial.

Logistics: Jain, speaking from his extensive export experience, provided a refreshingly direct assessment of logistical challenges. He dismissed concerns about operational or logistical barriers to entering new territories as overblown.

“There’s nothing operationally or logistically which is a challenge. The challenge is to get an order and execution of it,” Jain stated bluntly. “The logistics portion, I think so, it’s been overdone. Yes, you may have one or two days delay at the port, as against probably someone, but there are enough congestions in other ports also around the world.”

He credited government efforts toward digitalization and smooth data flow, acknowledging some remaining glitches with RBI connectivity but expressing confidence in rapid resolution. His advice to exporters was unequivocal: focus on securing orders, and the rest—including production and logistics—will fall into place.

However, when Aras pressed him on logistical cost reductions, particularly given infrastructure investments in recent years, Jain’s response revealed persistent challenges. While GST implementation years ago improved cross-country movement, and roads have improved, costs have not declined proportionally. His own experience establishing an office in Surat three years ago highlighted regional disparities. Calcutta, despite offering the country’s most competitive labor rates among manufacturing clusters, faces severe raw material sourcing challenges—everything must come from outside, whether PC fabrics from Ludhiana or filament-based materials from Surat.

“Some people are sending by truck goods from Calcutta to Bombay to ship it out,” Jain revealed, illustrating the Calcutta port’s inefficiencies. This adds substantial costs for eastern exporters. While railway container systems are improving, they remain neither sufficiently efficient nor fast, and the promise of inland waterways remains unrealized.

Integration as Strategy: Bandyopadhyay addressed the potential of greater textile-apparel integration to boost export readiness. His observation focused on a critical trend: major brands increasingly pursuing leaf-to-leaf integration to eliminate complications arising from international boundaries. When fabric issues require rework on small quantities, cross-border coordination becomes a significant headache, making vertical integration an attractive operational strategy.

The discussion revealed an industry at an inflection point. Technology adoption, particularly AI-driven tools, promises to differentiate service-oriented manufacturers in the coming decade. The tension between scale requirements and MSME participation remains unresolved, with policy adjustments attempting to bridge the gap. Logistical infrastructure shows improvement in some dimensions while cost competitiveness lags. Through it all, the imperative remains clear: India’s path to diversified export markets demands both technological sophistication and pragmatic solutions to persistent structural challenges.

The inputs for this story are drawn from the webinar conducted by ITJ on 6 November 2025.