India’s Textile Exports Remain Weak Despite Rupee Depreciation, HSBC Finds
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The rupee's depreciation has not translated into a meaningful increase in India's textile and footwear exports, according to HSBC's analysis. The bank's comparison of Indian and Vietnamese exports in the European Union market points to higher tariffs on Indian mid-tech goods, while India's domestic import duty structure adds another hurdle for manufacturers.
Invest in Indian Markets and Unlock Future Potential With 5paisa!For mid-tech products such as textiles, India faces a noticeably higher average tariff in the EU than Vietnam. The difference can offset the price advantage that a weaker rupee is expected to provide to exporters.
The problem also exists within India's own tariff structure. HSBC's analysis of individual product codes shows that some raw materials and components attract higher import duties than the finished products made from them. Known as an inverted duty structure, this can make importing an input more expensive than importing the finished product and discouraging domestic manufacturing.
Rupee weakens, but trade deficit remains largely unchanged
The rupee has weakened 11% against the dollar, 20% against the pound, and 24% against the euro over the past 18 months.
Under the conventional J-curve theory, a currency depreciation initially increases the trade deficit because imports become more expensive. The deficit is then expected to narrow as exports become more competitive, and volumes increase.
India's goods exports rose from 12.1% of GDP to 14.2% over the past year. Imports also increased, partly due to GST rate cuts that supported domestic consumption. As a result, the trade deficit remained roughly at its earlier level. HSBC describes this as a "weak" J-curve.
HSBC used a VAR model based on 11 years of quarterly data to examine the impact of rupee depreciation. The analysis found that imports decline over time after a depreciation, while exports show little response.
High-tech exports respond, mid-tech exports remain flat
HSBC divides India's goods exports into three categories based on technology intensity.
High-tech goods, including machinery, electronics and transport equipment, account for roughly half of core exports. These exports show a clear increase of two to three quarters after the rupee weakens.
Low-tech goods, including food and marine products, account for about 15% of exports and show a modest response.
Mid-tech goods, which include textiles, footwear, plastics, metals and stones, account for close to a third of core exports. Their response to rupee depreciation is almost negligible. Textile and footwear exports in particular remain essentially flat.
HSBC's 2021 research had identified a similar pattern, with mobile phones and pharmaceuticals gaining global market share while textiles and agriculture stagnated. The recent depreciation of the rupee has not materially changed that pattern.
Tariff disadvantage affects exporters
The tariff gap is visible in both external markets and India's domestic import structure.
In the EU, Indian mid-tech goods face higher average tariffs than comparable Vietnamese products. The difference is smaller for high-tech goods.
India also lacks the preferential access available to some regional competitors. Bangladesh has duty-free, quota-free access to the EU as a least-developed country, while Pakistan has preferential access under GSP+. India faces standard MFN tariffs of 9-12% on many textile and leather product lines. The tariff difference can exceed the pricing benefit from a weaker rupee.
The domestic tariff structure creates another issue. HSBC's examples include polyamide, an input, which carries a 5.9% duty, compared with a 5.6% duty on finished industrial robot parts. Man-made fibre ribbons, another input, face a 15.2% duty.
India's average import tariff on high-tech industrial inputs is 6.4%, lower than the 7.5% tariff on mid-tech industrial inputs. This is despite high-tech supply chains generally relying more heavily on imported components.
Mobile phones highlight the manufacturing gap
HSBC also examines exports by their stage of production, dividing them into primary, intermediate, and final goods.
Final goods have increased their share of exports, while intermediate goods, including components and semi-processed materials, have lost their share.
Mobile phones illustrate the trend. The PLI scheme has helped India develop into a major global assembly hub, and phone exports have increased sharply. However, net exports of the components used in those phones have turned negative and continued to decline.
India is therefore exporting more finished phones while importing more of the components used to make them.
Services exports show a stronger currency response
Services exports have responded more strongly to rupee depreciation than goods of exports. Their lower dependence on imported inputs is one factor behind the difference.
HSBC expects India's services exports to retain this support despite global headwinds, although the impact of artificial intelligence on demand for outsourced services remains uncertain. The bank identifies this as a risk to the support currently provided by services of exports.
Trade agreements could narrow the gap
HSBC identifies trade agreements as another route to addressing India's tariff disadvantage.
India has concluded or brought into force agreements with the EU in January 2026, the UK in July 2026, Oman in June 2026, New Zealand in April 2026 and EFTA in October 2025. Negotiations are active or under review with the US, Israel, ASEAN, Canada, the GCC, Chile, Mexico and the Southern African Customs Union.
These agreements could narrow India's tariff gap with countries such as Vietnam and help address the inverted duty structure. Their impact on trade, however, will depend on implementation, rules of origin, compliance costs, non-tariff barriers such as Quality Control Orders and whether exporters make use of the preferences available to them.
HSBC also points to the need for India to strengthen trade relationships with East Asia, which supplies a significant part of the component base used in intermediate manufacturing.
RBI faces the next challenge after FCNR(B) inflows
India has traditionally relied partly on foreign capital inflows to fund its current account, as the country imports more than it exports even in stronger economic periods.
This year, banks raised $127 billion through FCNR(B) deposits under a window that closed on August 31. The inflows helped provide the RBI with strong spot reserves, which stood at $729 billion as of August 21.
The deposits will eventually have to be repaid. The RBI's short forward book, representing its near-term foreign exchange obligations, had reached $137 billion by the end of July.
With the FCNR(B) window now closed, HSBC expects the focus on more durable sources of capital inflows to increase. Improving actual export earnings becomes more important as the reliance on the one-off deposit scheme comes to an end.