India’s Textile Trade Amid Global FTA Negotiations

India’s trade relations in 2025 are marked by developments in Free Trade Agreements (FTAs). Negotiations with the United States are nearing a deal, but it will not be a legally binding World Trade Organization (WTO)-compliant FTA. Meanwhile, India has signed a comprehensive FTA with the United Kingdom and is close to finalising one with the European Union by year-end. These agreements aim to diversify India’s export markets, especially in textiles and clothing (T&C), a vital sector for employment and export earnings. However, competition from countries like Vietnam and Bangladesh remains intense.

Current Trade Negotiations and Market Diversification

India is pursuing multiple FTAs to reduce dependence on uncertain bilateral trade arrangements. The UK and EU deals are expected to open preferential access to large markets. However, benefits will materialise only after ratification and full implementation. The period between signing and enforcement is crucial for India to prepare its industries to exploit new opportunities.

Challenges in the Textile and Clothing Sector

Textiles and clothing is India’s second-largest employment source after agriculture. It faces challenges such as reciprocal tariffs from the US and stagnant export shares globally and in key markets like the EU and UK. India’s global textile export share rose slightly from 5.2% to 5.8% between 2010 and 2024, but clothing exports have remained stuck at about 3%. This contrasts with developing countries like Vietnam and Bangladesh, which have increased their market shares.

Competitive Position of India’s Textile Exports

Vietnam and Bangladesh have gained ground in major markets. Vietnam’s clothing exports grew from under 1% of global share in 2000 to over 6% in 2024. Bangladesh has overtaken India as the second-largest T&C supplier to the UK. China remains the dominant global exporter. India lags behind due to slower growth and less competitive supply chains.

Impact of Free Trade Agreements on Competitiveness

Vietnam’s early FTAs with the EU and UK since 2020 and 2021 give it a first-mover advantage. By 2027-28, Vietnam will enjoy zero tariffs on all T&C exports to these markets. Although India’s UK FTA has stricter rules of origin, Vietnam benefits from more flexible provisions under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Vietnam’s integration into high-standard FTAs has improved its manufacturing standards and sustainability credentials, boosting competitiveness in Europe.

Global Value Chain and Technological Gaps

India’s T&C sector has a high domestic value addition (83.2%) comparable to China (89.1%). However, China’s advanced technology integration and efficient supply chains set it apart. Chinese platforms like Shein and Temu use artificial intelligence for demand forecasting and seamless coordination of production and logistics. India’s long supply chains with many intermediaries increase lead times and costs. Policy constraints and labour rigidities hinder technological upgrades and adaptation to trends like man-made fibres and technical textiles.

Need for Strategic Sectoral Reforms

India must accelerate FTA negotiations alongside production reforms. Technological modernisation, supply chain integration, and alignment with global standards are essential. This will enable Indian textiles to compete effectively in fast-evolving international markets and leverage preferential trade access fully.

Questions for UPSC:

1. Critically discuss the role of Free Trade Agreements in India’s export diversification strategy and its impact on the textile sector.
2. Analyse the challenges faced by India’s textile and clothing industry in the context of global value chains and technological advancements.
3. Examine the significance of rules of origin in Free Trade Agreements and their effect on developing countries like India and Vietnam.
4. Estimate the impact of digital technologies such as artificial intelligence on supply chain management and competitiveness in global textile exports.

Answer Hints:

1. Critically discuss the role of Free Trade Agreements in India’s export diversification strategy and its impact on the textile sector.

1. FTAs help reduce dependence on uncertain bilateral trade deals, enabling market diversification beyond the US.
2. India’s FTAs with UK and EU aim to provide preferential access to large, lucrative markets.
3. Benefits of FTAs materialize only after ratification and implementation, requiring preparatory industry readiness.
4. Textiles, a key employment sector, face stiff competition despite preferential access due to stagnant export shares.
5. FTAs can boost exports if accompanied by sector-specific reforms and technological upgradation.
6. Vietnam’s early FTAs with EU/UK show first-mover advantage, denoting the need for India to accelerate and leverage FTAs effectively.

2. Analyse the challenges faced by India’s textile and clothing industry in the context of global value chains and technological advancements.

1. India’s textile value chain is long with many intermediaries, causing delays and higher costs.
2. High domestic value addition (83.2%) is comparable to China but lacks integration and technology-driven efficiency.
3. Policy constraints and labour market rigidities restrict scale and technological modernization.
4. Global competitors like China use AI and integrated supply chains for demand forecasting and faster response.
5. India lags in adapting to global shifts towards man-made fibres and technical textiles.
6. Supply chain inefficiencies limit India’s competitiveness despite preferential market access via FTAs.

3. Examine the significance of rules of origin in Free Trade Agreements and their effect on developing countries like India and Vietnam.

1. Rules of origin (RoO) determine eligibility for preferential tariff treatment under FTAs.
2. India faces stricter RoOs (e.g., UK FTA) that may limit benefits due to high import content in exports.
3. Vietnam benefits from more flexible RoOs under CPTPP allowing some non-originating inputs.
4. Flexible RoOs help Vietnam maintain competitive advantage and faster tariff reductions.
5. Strict RoOs can increase compliance costs and reduce export competitiveness for India.
6. About and negotiating favorable RoOs is crucial for maximizing FTA benefits.

4. Estimate the impact of digital technologies such as artificial intelligence on supply chain management and competitiveness in global textile exports.

1. AI enables accurate demand forecasting, reducing inventory risks and lead times.
2. Chinese platforms like Shein and Temu use AI to align production with consumer preferences swiftly.
3. Digital integration optimizes coordination between raw material sourcing and manufacturing capacity.
4. Efficient logistics and AI-driven supply chains lower costs and improve product quality.
5. India’s lack of digital adoption in textiles leads to longer supply chains and inefficiencies.
6. Adopting AI and digital tools is critical for India to compete in fast-fashion and sustainability-driven markets.