US Penal Tariffs on India: A Potential Relief and Its Implications for Panipat’s Yarn and Home Textile Exports

September 18 , 2025

~ Chandan Munjal

The recent statement by India’s Chief Economic Adviser V Anantha Nageswaran has sparked optimism in the trade community. Speaking at an event in Kolkata, he expressed confidence that the 25% penal tariff imposed by the US on Indian imports—part of a broader 50% tariff regime (25% reciprocal + 25% penal) enacted under the International Emergency Economic Powers Act (IEEPA)—could be withdrawn after November 30, 2025. This follows the tariffs’ implementation on August 27, 2025, affecting most Indian products entering the US market, though exclusions apply to sectors like iron, steel, aluminum, vehicles, and copper. Nageswaran attributed the penal component to geopolitical factors but highlighted ongoing Indo-US discussions, suggesting a resolution on both penal and reciprocal tariffs within months. Despite the tariffs, about 30.2% of India’s $86.5 billion exports to the US in FY25 remain duty-free, per a Global Trade Research Initiative (GTRI) report. This development comes at a critical time for India’s textile sector, which has been severely impacted, particularly in export hubs like Panipat, Haryana.

The Broader Impact on India’s Textile Exports to the US

India’s textile industry, valued at over $150 billion and contributing 15% to the country’s export earnings, has faced significant headwinds from these tariffs. Textiles, including yarn and home furnishings, are not among the exempted categories, making them subject to the full 50% duty hike from previous base rates (often 9-10% for home textiles). This has led to stalled orders, reduced competitiveness, and a projected 5-10% revenue decline for home textile exporters in FY26, according to CRISIL ratings. The sector’s vulnerability is amplified by the US being India’s largest export market for textiles, accounting for about 27% of total shipments. Overall, Indian exports to the US reached $79.44 billion in 2024, with textiles forming a substantial portion. The tariffs have prompted buyers to demand discounts or shift orders to competitors like Pakistan, Bangladesh, Turkey, Vietnam, and Egypt, resulting in job losses and production cuts across India.

Focus on the Yarn Market:

Challenges and Statistics

Yarn, a foundational element of the textile value chain, has been particularly affected. India’s cotton yarn exports, which include both pure cotton (HSN 5205) and blended varieties (HSN 520611/520612), totaled $4.92 billion in a recent surge year, with year-to-date (Aug-Dec 2024) volumes 5% higher than the five-year average. However, exports to the US—a key market—have faced disruptions. For instance, cotton yarn with less than 85% cotton content exported to the US was valued at $1.04 million in 2024, a niche but indicative figure for blended yarns. Overall cotton exports reached $6.78 billion in FY24 and $1.63 billion in the first quarter of FY25. The 50% tariff has made Indian yarn less competitive, leading to order cancellations and a shift toward recycled and sustainable yarns as a differentiator. In Panipat, a major yarn production center specializing in recycled melange and cotton yarns, the tariffs have exacerbated issues, with exporters reporting up to 30% of orders stuck or renegotiated. Panipat’s yarn industry, which repurposes textile waste (HSN 5202 and 6310), has seen production slowdowns, threatening its role in India’s $10.56 billion textile exports in FY25.

Rugs and Bath Mats Exports from Panipat:

A Hard-Hit Segment

Panipat, often dubbed India’s “Textile City,” is the epicenter for home textiles like rugs, bath mats, and floor coverings, with annual exports valued at Rs 20,000 crore ($2.4 billion), of which 60% (Rs 12,000 crore or $1.44 billion) goes to the US. Specifically, floor coverings including carpets, rugs, and bath mats account for Rs 16,000 crore in exports, with the tariffs impacting Rs 9,600 crore worth of shipments. The US tariff hike from 9% to 59% has hit this segment hardest, as home textiles represent 60% of India’s $10 billion annual exports to the US in this category. Exporters in Panipat, home to around 400 firms, have reported a 30% drop in orders, factory closures, and worker migration due to the uncertainty. This has ripple effects on related products like cushions and bed covers, amplifying job losses in a labor-intensive industry that employs millions.
Potential Benefits if Tariffs Are Removed
If the penal tariff is lifted post-November 30, as Nageswaran anticipates, it could restore tariffs to the 25% reciprocal level or lower through negotiations, providing immediate relief. For Panipat’s yarn and home textile exporters, this would revive stalled orders, boost competitiveness, and potentially increase exports by 5-10% in the short term. It aligns with India’s goal of reaching $1 trillion in exports (25% of GDP), with textiles playing a key role. Sustainable practices, such as Munjal International’s regeneration program turning waste into premium yarns, could gain further traction in the US market, where eco-friendly products are in demand.

The Way Forward:

Strategies for Resilience and Growth
To navigate this period and capitalize on potential tariff relief, stakeholders in Panipat and the broader textile sector should adopt a multifaceted approach:

1. Diplomatic and Policy Advocacy: Continue Indo-US talks to resolve tariffs fully. The Indian government could leverage schemes like the Production Linked Incentive (PLI) for textiles and extend duty-free cotton imports until December 2025 to stabilize raw material costs.
2. Market Diversification: Reduce US dependency by targeting emerging markets like the EU, Australia, and Japan. Panipat exporters have already seen some shifts, but accelerating FTAs (e.g., with the UK) could open new avenues.
3. Innovation and Sustainability: Focus on value-added products like recycled yarns (aligning with HSN 5202/6310 waste repurposing) to command premium prices. Companies like Munjal International exemplify this by integrating sustainability, which could mitigate tariff impacts through certifications and eco-labeling.
4. Supply Chain Enhancements: Invest in technology for efficiency, such as digital tracking and AI-driven forecasting, to absorb cost pressures. Collaborations with MSMEs for skill development can prevent job losses.
5. Government Support: Seek export incentives, credit facilities, and insurance against geopolitical risks. Extending initiatives like the “Manjapai” campaign for waste recycling could bolster Panipat’s circular economy model.
   

In summary, while the US tariffs have inflicted short-term pain on Panipat’s yarn, rugs, and bath mats exports, the anticipated relief post-November 30 offers a pathway to recovery. By emphasizing sustainability and diversification, the sector can emerge stronger, contributing to India’s textile leadership on the global stage. For businesses like those in Panipat, adapting now will ensure long-term competitiveness.

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