India’s apparel exports stumble despite UK FTA boost

The China+1 strategy has catalyzed a proactive modernization wave across ASEAN supply chains, with countries like Malaysia aggressively attracting FDI and upgrading manufacturing capabilities to stay competitive. However, this shift has intensified competition as Chinese firms enter these markets armed with advanced technologies, compelling local manufacturers to accelerate their transitions or risk obsolescence. Yet, fully decoupling from China remains operationally challenging, as duplicating digital systems and capabilities on both sides creates inefficiencies, underscoring the complexity of supply chain redesign in the region.

Despite capturing up to $250 billion in greenfield manufacturing investments between 2019 and 2024 linked to China+1 decisions, ASEAN countries still heavily rely on China for component sourcing, revealing that supply chain diversification is far from complete. This nuanced reality highlights that while production footprints are shifting, the underlying supplier networks remain deeply intertwined with China, limiting the full strategic decoupling many sought through China+1.

India’s apparel sector stands at a crossroads in the China+1 landscape, poised for multi-year growth driven by global sourcing shifts and trade agreements like the India-UK FTA. Yet, as 360 One Capital emphasizes, India’s fragmented production and limited scale—capturing only about 3% of global apparel trade compared to Bangladesh’s 9-10% and Vietnam’s 6-7%—hamper its ability to meet international buyers’ volume demands. Success will hinge less on favorable tariffs and more on boosting factory productivity, automation, compliance, and diversifying into man-made fibres and technical textiles to align with evolving global demand.

India’s struggle to capitalize on the China+1 opportunity is compounded by policy and operational challenges: reluctance to attract Chinese investment contrasts sharply with Bangladesh and Vietnam’s openness, which has allowed these countries to integrate Chinese suppliers and technologies more effectively. As Rahul Mehta of CMAI notes, India’s apparel exports have stagnated over five years, losing up to $7 billion due to supply chain gaps, while compliance, labor, quality, and scale issues continue to impede the full leverage of free trade agreements. This underscores that India’s path forward requires not just policy shifts but also substantial manufacturing scale-up and modernization to compete regionally.

The India-UK Free Trade Agreement (CETA), effective July 2026, dramatically enhances market access for India's textile and apparel sectors by granting nearly 99% duty-free entry into the UK's USD 28.8 billion textile import market. This zero-duty access removes India's previous tariff disadvantages against regional competitors like Bangladesh, Pakistan, and Cambodia, positioning India as a preferred global apparel sourcing hub, as highlighted by the Apparel Export Promotion Council (AEPC). Moreover, India's integrated fibre-to-fashion ecosystem supports compliance with Rules of Origin and meets global buyers' increasing demands for supply chain transparency and sustainability, further strengthening its competitive edge in the UK market.

Despite the tariff advantages unlocked by the India-UK FTA, experts including the Global Trade Research Initiative (GTRI) caution that tariff reductions alone are insufficient to significantly boost India's apparel exports. Non-tariff barriers such as compliance with UK sanitary, phytosanitary, and technical standards, along with regulatory approvals and logistics, remain critical hurdles. Indian garment, leather, and footwear producers must swiftly convert tariff savings into orders by meeting these stringent requirements and strengthening certification, buyer networks, and supply chain efficiencies to fully capitalize on the agreement's potential before competitors adjust.

The India-UK FTA strategically balances market opening with domestic industry protection by phasing tariff concessions over 5, 7, and 10 years for sensitive sectors under initiatives like Make in India and the Production Linked Incentive (PLI) Scheme. This phased approach allows Indian manufacturers time to build capacity and remain competitive while safeguarding sensitive agricultural and strategic sectors by excluding items such as dairy, millets, and edible oils from duty concessions. Such calibrated implementation underscores the agreement's role in fostering sustainable export-led growth without compromising domestic interests.

Industry stakeholders acknowledge the India-UK FTA as a landmark opportunity to deepen economic collaboration and accelerate export growth, particularly in textiles and apparel. However, they emphasize that implementation gaps—ranging from regulatory and procedural challenges to supply chain inefficiencies—must be addressed through concerted efforts to realize the agreement's full benefits. As India navigates the China+1 sourcing trend alongside new FTAs, long-term export gains will depend on scaling manufacturing, enhancing productivity, and executing strategic improvements to convert market access into tangible trade expansion.

Despite the promising tariff reductions under the India-UK Free Trade Agreement (CETA), India’s apparel export growth remains stunted by deep-rooted structural and operational challenges. The Global Trade Research Initiative (GTRI) underscores that without strengthening certification, standards, and buyer networks, much of the FTA’s potential remains unrealized, as evidenced by India’s modest market shares—only 6.1% in UK garment imports and even lower in processed foods and automobiles. These gaps in regulatory approvals, compliance with sanitary and phytosanitary rules, and supply chain inefficiencies mean that tariff advantages alone cannot convert access into substantial export volumes.

Supply chain inefficiencies represent a critical bottleneck, causing India to forfeit up to $7 billion in apparel exports according to recent studies. This fragmentation in production, coupled with limited manufacturing scale and capability deficits, restricts value addition and undermines competitiveness. As 360 One Capital highlights, operational readiness—including factory productivity, automation, and supply chain resilience—is essential for India to translate trade agreement benefits into sustained growth, moving beyond labor cost advantages to meet evolving global demands for advanced fibers and technical textiles.

India’s inability to provide the scale and volume demanded by international buyers remains a persistent hurdle in capitalizing on the China+1 sourcing shift and free trade agreements. Rahul Mehta points out that while buyers sought to diversify sourcing beyond China, India could not match the manufacturing scale of competitors like Bangladesh and Vietnam, who also benefited from more open foreign investment policies, particularly welcoming Chinese capital. Structural challenges such as compliance, labor issues, quality concerns, and limited manufacturing scale continue to impede India’s full integration into regional supply chains and its export growth potential.

By mid-2026, industry leaders like the Clothing Manufacturers Association of India (CMAI) emphasized that India's textile and apparel sector must transcend its traditional reliance on low-cost manufacturing to realize the ambitious $100 billion export target by 2030. This capability transformation hinges on embedding sustainability, product innovation, digitalization, and supply-chain transparency into the core of operations. While India boasts an integrated fibre-to-fashion value chain with an impressive 83.2% domestic value addition, this structural strength has yet to translate into dominance in faster-growing segments such as finished apparel, man-made fibre garments, and technical textiles, underscoring the need for strategic diversification.

The pathway to future export growth is less about scaling manufacturing capacity and more about enhancing enterprise capabilities to align with evolving global buyer expectations. Over half of India's textile exports are concentrated in just 134 product categories where the country already commands over 10% of the global market share, revealing both a strength and a vulnerability. This concentration highlights significant untapped potential in higher-growth segments, suggesting that broadening the product portfolio and deepening value addition will be critical for India to capture greater global market share and meet the sophisticated demands of international buyers.

Shifting global demand toward man-made fibres and technical textiles presents India with its biggest growth opportunity—if it can pivot from cotton dominance and invest in advanced manufacturing.