Rating agency ICRA has stated that the reduction in US tariffs to 18 per cent from the elevated levels seen in 2025 represents a relatively smooth landing for Indian exporters amid fluid global trade dynamics. Labour-intensive sectors such as textiles, cut and polished diamonds, seafood and footwear are expected to benefit from improved landed-cost competitiveness.

While sentiment has improved immediately, the translation into higher export volumes and margin recovery is likely to occur with a lag, depending on contract renewals with US buyers and evolving US demand. ICRA has revised its outlook on apparel exports to Stable, while maintaining a Negative outlook on cut and polished diamonds.

As per the recent US–India joint statement, reciprocal tariffs on India have been lowered to 18 per cent from 25 per cent. Subject to the conclusion of the Interim Agreement, reciprocal tariffs imposed by the US on select Indian goods—including generic pharmaceuticals, gems and diamonds, and aircraft parts—would also be removed. Additionally, the 25 per cent ad valorem duty on Indian imports introduced in August 2025 in lieu of Russian oil imports has been eliminated through an Executive Order issued by the US President.

Jitin Makkar, Senior Vice President and Group Head – Corporate Ratings, ICRA Limited, said, “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. Likewise, polished diamond exporters sought to minimise tariff-related frictions by reorganising their supply chains to reach US buyers while compromising their working capital cycles, with shipment timelines lengthening by around 30 days. Against this backdrop, the lowering of US tariffs, as a prelude to the formal signing of the US–India trade agreement, along with the anticipated implementation of the India–EU free trade agreement next year and other bilateral trade pacts, augurs well for a gradual strengthening of India’s manufacturing export growth over the medium term.”

Based on the revised tariff regime, ICRA has upgraded its outlook on the Indian apparel (exports) sector to Stable from Negative. India’s apparel exports stood at USD 16 billion in FY2025, with the US accounting for around one-third of the total, making it both a key revenue contributor and a relatively more profitable market.

In September 2025, ICRA had projected a decline in apparel exports in INR terms of 6–9 per cent in FY2026 and a further 4–6 per cent in FY2027 under a sustained elevated tariff regime. With tariffs now reduced, export revenues are still expected to contract in FY2026, but the decline is projected at a moderated 3–5 per cent. Revenues are forecast to rebound in FY2027, growing by 8–11 per cent. Operating profit margins (OPM), expected to compress by around 200 basis points to 7.7 per cent in FY2026, are likely to recover to about 9.5 per cent in FY2027, supporting the Stable outlook.

ICRA continues to maintain a Negative outlook on the cut and polished diamonds sector, despite the potential removal of US tariffs following the Interim Agreement. The sector faces structural challenges from lab-grown diamonds, which have gained consumer acceptance and impacted both volumes and prices of natural diamonds.

India’s diamond exports peaked at USD 24 billion in FY2022 but are projected at around USD 12 billion in FY2026. Alongside lower volumes, natural diamond prices have come under pressure, with average realisations per carat at around USD 725 in 9M FY2026, reflecting a 7 per cent CAGR decline over the past three years.

ICRA expects natural diamond exports to grow by 6–8 per cent in FY2027, supported by anticipated tariff removal, price stabilisation, BIS labelling to distinguish natural diamonds from lab-grown variants, and improved restocking momentum as both segments stabilise in retail markets. However, overall diamond exports in FY2027 will remain significantly below the FY2022 peak, constraining earnings and warranting the continued Negative outlook.

Over the longer term, ICRA expects corporate India to prioritise geographical diversification as a key risk mitigation strategy. Exporters are likely to strengthen efforts to build a broader global customer base, even at the cost of near-term margins. Investment in overseas manufacturing or partnerships to establish diversified production bases may also gain traction, as companies seek to hedge against an increasingly volatile and geopolitically influenced trade environment.