Highlights

• India supplies ~70% of Bangladesh’s cotton and 46% of its yarn, deeply linking the two textile economies.

• The US deal gives zero-duty access to garments made with US-origin cotton, reshaping sourcing incentives.

• Indian cotton and yarn exporters risk volume pressure if Bangladesh shifts to US raw materials.

• Indian garment exporters to the US may face sharper price competition from Bangladesh.

• India must pivot to diversification, value addition, and new markets like the EU and UK.

The newly announced trade alignment between the United States and Bangladesh has introduced a fresh layer of uncertainty for India’s textile and garment ecosystem at a time when exporters were beginning to regain confidence in the American market. For India, the concern is not merely about tariff differentials but about a structural shift in sourcing incentives that could gradually weaken its upstream dominance in cotton and yarn while intensifying price competition in finished garments.

India currently plays a central role in Bangladesh’s textile value chain. Between April and November 2025, India exported roughly $1.58 billion worth of cotton to Bangladesh, following $1.47 billion in the previous financial year. More broadly, India supplies nearly 70 percent of Bangladesh’s cotton imports and about 46 percent of its yarn requirements, effectively positioning itself as the backbone of Bangladesh’s garment manufacturing engine. This interdependence has historically benefited Indian cotton growers and spinners, as Bangladesh has grown into one of the world’s largest apparel exporters, particularly to the US market.

The new US–Bangladesh trade arrangement alters that equation. While headline tariffs are now 19 percent for Bangladesh compared with 18 percent for India, the real game-changer lies elsewhere: garments manufactured using US-origin cotton and man-made fibres receive zero-duty access. This creates a powerful incentive for Bangladeshi manufacturers to realign their raw material sourcing toward American suppliers in order to maximise export competitiveness in the world’s largest apparel market. In practical terms, this means that sourcing decisions are no longer purely cost-driven but increasingly tied to tariff optimisation.

For Indian exporters of cotton and yarn, this raises the risk of volume displacement. Export-oriented spinning and cotton businesses have long factored steady Bangladeshi demand into their capacity planning and pricing strategies. A gradual pivot by Bangladeshi mills toward US cotton could therefore create near-term pressure on Indian exporters, especially if sourcing patterns shift meaningfully over the next few quarters. Companies such as Vardhman Textiles, Nitin Spinners, Arvind Ltd, KPR Mill, and Sportking India, many of which derive a significant portion of export revenues from yarn and cotton shipments with exposure to Bangladesh, are structurally more sensitive to such shifts.

However, the adjustment may not be straightforward. US-origin cotton and man-made fibres are typically more expensive than alternatives sourced from India, Brazil, or parts of Africa. Bangladeshi manufacturers have historically optimised their supply chains for cost efficiency, and a forced reorientation toward US inputs could raise production costs unless offset by tariff benefits. The economics will therefore hinge on whether zero-duty access to the US market sufficiently compensates for higher raw material costs. If margins tighten for Bangladeshi garment makers, the impact may be partially diluted.

From the perspective of India’s own garment exports to the US, the situation is more nuanced. With tariffs at 18 percent for India versus 19 percent for Bangladesh, India retains a marginal advantage on paper. Yet this edge is fragile. If Bangladesh leverages zero-duty access tied to US-origin inputs effectively, it could increase shipments across both knitted and woven categories. Cotton-based apparel such as T-shirts and women’s tops - segments where price sensitivity is high - are particularly exposed. Estimates suggest that up to 26 percent of India’s cotton apparel exports to the US could face incremental competitive pressure if sourcing patterns change materially.

Indian garment exporters with meaningful US exposure, including Gokaldas Exports, Pearl Global Industries, and Welspun Living, may encounter higher buyer-driven competition as American retailers recalibrate sourcing baskets. Global brands tend to optimise procurement dynamically based on tariff structures, compliance standards, and cost advantages. If Bangladesh can offer competitive landed prices under the new regime, even marginal shifts in sourcing allocations could translate into tangible revenue implications for Indian players.

That said, the broader picture is not uniformly negative. India has recently concluded trade agreements with the European Union and the United Kingdom, potentially opening alternative growth avenues for textile exports over the medium term. Export diversification will now become less of a strategic choice and more of a necessity. Indian companies may also accelerate their move up the value chain - focusing on design-led products, technical textiles, and branded offerings - to reduce vulnerability to pure price competition in basic cotton categories.

Geopolitical factors also play a role. Compliance scrutiny over forced labour concerns linked to certain cotton-producing regions has reshaped sourcing preferences globally. For Bangladesh, sourcing US cotton not only improves tariff positioning but also reduces geopolitical risk in Western markets. For India, maintaining credibility on traceability and sustainability will be equally critical to preserving market share in premium segments.

In essence, the US–Bangladesh trade deal does not instantly displace India from the textile ecosystem, but it introduces a structural incentive that could gradually dilute India’s upstream leverage in cotton and yarn. The most immediate vulnerability lies in raw material exports to Bangladesh and in price-sensitive cotton apparel exports to the US. The resilience of Indian exporters will depend on how quickly they adapt - through market diversification, value addition, cost optimisation, and supply chain agility.

The coming quarters will reveal whether this development marks a temporary competitive jolt or the beginning of a deeper realignment in South Asia’s textile trade flows. For now, India’s textile sector faces a renewed stress test in the American market - one that will demand strategic recalibration rather than complacency.