The United States is a critical export destination for the Indian textile and apparel industry, with annual shipments reaching approximately $10 billion. The recent imposition of tariffs by the U.S. on these imports presents a complex situation. It offers a potential advantage while simultaneously exposing underlying vulnerabilities within the Indian manufacturing sector.  

Initially, there was some optimism that India would be better positioned since it faces a 26% duty, lower than the duties imposed on key competitors like Bangladesh (37%), Vietnam (46%), and Cambodia (49%). However, this initial optimism may be premature, according to the calculations done by Wazir Advisors.   

Initial optimism vs. Cost reality

Even with an 11% lower import duty than Bangladesh, Indian products might still be more expensive because the basic production cost in India is roughly 10-12% higher.  

The numbers don't lie: A cost comparison

Here’s an example illustrating how India's higher production costs can negate the advantage of a lower tariff:  

India's narrow margin for price competitiveness

This calculation reveals that for products with an old duty rate of 16.5%, India will still be more expensive than Bangladesh if the Indian FOB price was 9% higher from the start. For most products, India's FOB price can only be about 7.2% to 8.3% higher for the final prices to be equal to those from Bangladesh. Otherwise, Indian goods will be more expensive, even with the lower tax.  

Bangladesh's production capacity and supply chain inertia

Considering Bangladesh's larger production capacities and the reluctance of brands to change their supply chains for small cost differences, India's ability to significantly gain market share from Bangladesh in many product categories is limited.  

India's path to gaining market share

India would have a slightly better advantage over other competitors. However, developing the necessary product-level competency and production capacities will be crucial for India to achieve substantial gains.