India Poised to Gain as Global Apparel Sourcing Shifts from China: Report

India’s textile industry could be on the verge of its biggest opportunity in decades as global apparel sourcing gradually shifts away from China, with tariff parity, improving trade access and supportive government policies positioning Indian manufacturers to capture a larger share of global demand, according to a report by Nuvama Institutional Equities.

The global textile industry, valued at approximately US $1.6 trillion, is a mature market expanding at a modest annual rate of 2.5-3.5%. It said India’s growth opportunity is therefore likely to stem not from higher global consumption but from a redistribution of existing sourcing volumes.

China’s share of US apparel imports has halved over the past decade, creating an opportunity for competing suppliers including India, Bangladesh, Vietnam, Pakistan and Indonesia to secure a larger share of the market.

India is now entering this competitive landscape without the structural disadvantages that constrained its performance in earlier decades. It observed that all major apparel-producing countries, with the exception of China, now operate under broadly similar tariff conditions, while India’s market access is improving through new trade agreements.

The brokerage highlighted the India-UK Comprehensive Economic and Trade Agreement (CETA), which came into force on 15 July, as a key development expected to strengthen India’s access to the UK market. It added that ongoing negotiations for an India-European Union Free Trade Agreement (FTA) could provide another significant boost to exports.

India’s share of the European Union’s apparel import market has remained at around 3% for the past decade, significantly below Bangladesh’s 16.7% share, indicating substantial potential for export growth if improved market access is secured.

Nuvama also identified improving demand conditions in the United States as another positive factor. It noted that US retail sales increased from US $5.3 trillion in FY19 to US $7.2 trillion in FY24, reflecting a compound annual growth rate (CAGR) of 6%, while retailers simultaneously reduced inventory levels. With inventory-to-sales ratios now returning to normal, the brokerage said purchasing activity has resumed, which could support textile exporters.

While India remains one of the world’s largest cotton producers and spinning hubs, it continues to rely heavily on cotton even as global fibre consumption has increasingly shifted towards man-made fibres (MMF). The report also noted that India’s garment industry has historically been constrained by relatively higher labour costs, limited trade advantages and a fragmented manufacturing base.

Government initiatives such as the PM MITRA parks are intended to improve manufacturing integration and economies of scale. It added that continued policy support for garments, MMF and technical textiles could help India move further up the textile value chain.

However, the brokerage cautioned that several risks remain. These include the possibility of changes in US tariff arrangements, delays in concluding the India-EU FTA, volatility in cotton prices, excess Chinese MMF capacity circumventing trade barriers and execution risks associated with large planned capital investments.