By Falak Ali
While the growth in India’s merchandise exports have stagnated in recent years (average annual growth of just 1.3% in the last three financial years), sectors dominated by MSMEs – ready-made garments (RMG), carpets, leather and footwear, wood handicrafts and tea – have registered even lower annual growth rates (see chart). This also explains the low pace of job creation, as these sectors are among the most employment-intensive ones in the Indian economy.
While the rate of increase in RMG exports had lagged in comparison to that of overall exports, after the Covid lock-down, the gap between their growth rates has been widening. RMG exports exhibit a plateauing trend with periodic declines. In 2023-24 and 2024-25, RMG shipments showed a marginal uptick, but this was short-lived, and the Trump tariffs have now plunged the sector into a crisis. In April-July 2025, while the overall goods exports grew a dismal 1.56%, RMG segment saw a contraction of nearly 29%. Gems and Jewellery industry, also employment-intensive, also saw negative export growth (-0.74%).
Unless the tariffs aren’t reversed, or reduced substantially from the current level of 50%, there could be massive lay-offs in the sector.
Conventional policies, including those allowed capacity concentration and undue pricing power in the upstream segment of the synthetic textile value chain, has made India’s textile and clothing segment cotton-dominated, in contrast with the global preference for synthetic apparel.
A glimmer of hope is the slashing of the Goods and Services Tax (GST) on man-made fiber and yarn, but the presence of an inverted duty structure is still there, with key MMF inputs attracting higher GST than the value-added products.
On the face of it, the stagnation in garment exports could be attributed to intense competition from countries like Vietnam, Bangladesh and China, all of which have stronger Free Trade Agreements or duty-free access to developed markets, and are part of deeper global supply chains.
However, the shift of the RMG capacities to these countries, in the first place, was the result of India’s inability to seize the opportunity provided by China’s moving away from the sector, focusing more on high-tech manufacturing. As such, RMG exports – at $16 billion in FY25 of over $37 billion of textile and clothing exports—are still one of the major areas where India still has a window for acquiring a larger share of the world markets.
Exports from the tea processing industry, also a significant employment provider, moved in tandem with overall goods exports until FY21, but post-Covid, the sector has exhibited a loss of momentum. Over the past nine financial years, India’s tea exports have witnessed a generally upward trend, with occasional stagnation.
Jyoti Bhardwaj, founder of Tea Fit, a major exporter, said that most units in the segment are still job workers, rather than not brand owners or design leaders. Without investment in design, branding, and compliance, they will remain stuck in low-margin, bulk categories, she added. She emphasized the need for better institutional support tailored to the sector’s needs. “What’s needed is a dedicated FTA help-desk per sector or cluster, plug-and-play SOPs for MSMEs, and simplified digital certification processes that are integrated with export documentation,” Bhardwaj added.
A recurring concern among MSME exporters in general is the burden of regulatory compliance. Exporters report frequent complications in documentation, especially when importing partners fail to complete the export charge sheet. This leads to repeated notices from authorities such as the RBI, often requiring clarification or rectification. GST compliance is very hard to follow too.
“You have to file GST returns even when there’s zero business activity, monthly, quarterly, there’s no break. Without the service of a chartered accountant, it’s extremely difficult to manage these documents, but the cost of hiring one is just too high for small exporters,” said another tea exporter. “The government talks about ease of doing business, but for us, it’s all red tape and compliance,” an exporter remarked,requesting anonymity. The proposed easing of GST-related compliance may come to the aid of exporters.
Carpets exports peaked around FY22 but witnessed a fall since. In FY25, there was a mild recovery, which may indicate renewed global demand. However, this recovery is not yet strong enough to indicate robust growth.
As far as exports of footwear is concerned, the disparity with the aggregate shipments of the country has also aggravated after the pandemic. Footwear exports have been unstable with clear stagnation in the past two fiscal years despite the increase in global demand. This reflects domestic capacity constraints, according to industry sources.
The growth in wood handicrafts exports saw a peak in FY 22 but after that, there has been a downfall. According to an analyst, wood handicraft exports show a fluctuating trend. Despite India’s strong position in the global handicraft market, the recent dip reflects inconsistent demand and lack of scale. Tourism encourages handicraft exports and the decline in tourism in recent years could have had an impact on the exports of the goods. Cultural richness may be a strength but sustained export growth likely requires better global outreach and branding
According to the MSME ministry, India has 63 million MSMEs but only 38 million are registered on the Udyam portal, indicating that most still are in the unorganised sector. Even among the registered, just 1,73,350 MSMEs exported in FY25, though that’s a jump from 52,849 in FY21. That means less than 0.5% of registered MSMEs actually export.
MSME registration takes just 20 minutes on the Udyam portal and many newly registered units are inactive. An industry insider said that as soon as an MSME registers, government agencies should initiate contact and offer assistance, especially for those looking to export.
The ministry also highlights that MSMEs contributed $149 billion to India’s total exports in FY25, a significant leap from just $47.6 billion in FY21. They now support over 40% of total exports with key contributions in textiles, leather goods, jewellery, processed foods, and agricultural commodities.
Surender Singh Negi, a Delhi-based textile exporter talked about the challenges that persist beyond rising export volumes. “MSMEs often produce without branding. We’re competing putted against better-funded, better-equipped producers. We lack modern technology, so even when our participation increases, our performance doesn’t match.”
What are the challenges being faced by textile exporters?
The challenges, according to Negi, are multidimensional. Firstly, access to financing remains a barrier. “MUDRA loan scheme has opened doors for small businesses to get finance, but there are no special provisions for MSMEs, so domestic entities are getting most of the finance, leaving export-oriented MSMEs underfinanced,” he noted.
Post-COVID, the sector saw a sudden lowdown and this has more or less lingered. “We had to rebrand to survive. Many others didn’t have the resources to do that.”
In the footwear segment, many MSMEs face difficulties in complying with Bureau of Indian Standards (BIS) norms. “It’s not that we don’t want to comply. It’s just that the BIS process is complex, expensive, and confusing for small units,” said an exporter.
Leather exporters raise concerns over unstable raw material prices and difficulties in sourcing quality leather. “It gets difficult when raw material prices spike and when clients delay orders due to price fluctuations,” said a Kanpur-based exporter. Glassware exporters cite high electricity costs and inconsistent subsidy disbursal as critical hurdles. “We’re a power-intensive sector. When subsidies are delayed or scaled back without notice, we take a direct hit,” said a Firozabad-based exporter.
They urge for predictable energy subsidy timelines and incentives tied to energy efficiency improvements. Further, he added, a weak global economic outlook is also a key factor that is slowing demand.
Moreover, formal businesses required to source from registered suppliers have reduced engagement with informal MSMEs. This has led to shrinking markets for these small players. As a result, artisans and small manufacturers are cut off from both domestic and global supply chains.
An exporter commented, “The government should push for collaboration between e-commerce platforms and MSMEs, taking cues from China. Artisans should be enabled to sell directly online, bypassing middlemen.”
Possible solutions
Free trade agreements like the India-UAE CEPA and the new India-UK deals can bring tangible benefits to traditional sectors of textile and handicrafts. However, this can only be achieved with focused intervention by the government and trade associations. “Instead of treating FTAs as a diplomatic win, we need to extend its scope and treat them as an economic tool also. Market access doesn’t imply market penetration,” said a source.
MSMEs need help in identifying new markets, finding reliable buyers, accessing international networks and distribution channels as well as get help to enhance their product branding to suit international markets. For already exporting MSMEs, the issue is of bulk orders. They don’t get bulk orders which is increasing their capital cost.
“As most units are small and located in Tier2/3 cities, they lack access to information around overseas markets, export support offered by the government etc. Better coordination between state export boards and the Central government is needed to ensure information and export support reaches these small manufacturers/ exporters,” says Mayank Shah, CEO of Global Supplier Diversity Alliance. “India needs to make many implementation improvements to embrace digitisation. Current platforms like icegate, trade single window and ONDC are still to match global standards,” Shah said.