… by Balasubramanian A, Senior Vice President, TeamLease Services
Indian manufacturing is absorbing one of its sharpest external shocks in recent years. Nearly 30% of textile and apparel exports are tied to the United States, where tariffs now climb to as high as 50% on most products. Auto components, which account for 27% of exports to the same market, face duties of 25%, while capital goods shipments face effective tariff rates of 25% to 50%, depending on product classification. These pressures are no longer distant trade metrics. They are already influencing working hours, wage structures, and hiring decisions across factory floors. Employment has continued to expand at 5% to 6% annually, yet this apparent resilience conceals rising strain. As margins compress and contracts become unviable, manufacturers are being forced to reassess how long existing employment models can realistically endure. How India responds through trade policy, cost structures, and sector-specific support will shape the next phase of manufacturing employment.
Aggressively Negotiating Preferential Trade Agreements
Aggressively negotiating preferential trade agreements has become key to sustaining India’s manufacturing employment. The India–EU Free Trade Agreement cuts tariffs up to 10% on nearly $33 billion of Indian exports to zero, once the pact comes into force. Labour-intensive sectors such as textiles, apparel, leather, footwear, marine products, gems and jewellery, handicrafts, engineering goods, and automobiles stand to gain significantly, enhancing competitiveness and expanding market reach. These agreements also empower workers, artisans, women, youth, and MSMEs while integrating Indian businesses more deeply into global value chains. Trade arrangements with Middle Eastern countries, including Oman, provide duty-free access across most tariff lines, creating immediate demand channels, while deals with ASEAN and Gulf partners will further diversify export destinations. These agreements should be followed by equally robust domestic policy support to secure sustainable employment and production continuity.
Strengthening Employment Through Enhanced PLI Scheme
Higher payouts through the Production Linked Incentive (PLI) scheme are becoming a key tool for securing employment in labour-intensive manufacturing. The textile PLI has reopened applications, reduced investment thresholds, and added product categories, including technical fabrics and man-made fibres, giving firms space to scale operations. Across sectors, PLI initiatives have attracted nearly ₹2 lakh crore in investments and are supporting over 12 lakh jobs, showing how incentives translate directly into workforce stability. Linking payouts to production, exports, and employment retention allows manufacturers to maintain shifts and retain skilled workers despite global pressures. For industries under stress from tariffs and rising costs, these measures are essential for survival and sustained growth. Strengthening the PLI scheme further will ensure that market access and operational scale translate into secure jobs. Beyond these incentives, rationalising input duties is the next step to strengthen competitiveness in the global manufacturing economy.
Rationalising Input Duties to Cut Costs and Boost Manufacturing
Reducing tariffs on steel, chemicals, and advanced materials can directly improve competitiveness and sustain production in India’s export-oriented sectors. Excessive duties increase landed costs, limiting firms’ ability to invest in technology, scale operations, and retain workers. In textiles, synthetic yarns face higher tariffs than finished garments, while chemicals and specialised steels experience similar mismatches that raise production expenses. Correcting these anomalies would allow manufacturers to streamline supply chains, manage cash flows, and expand capacity without compromising employment. Rationalised input duties would also encourage domestic value addition, foster efficiency, and support long-term industrial growth as well as export diversification. For companies navigating global pressures, this reform would complement trade agreements and incentive schemes, creating a firmer foundation for workforce stability. This should be complemented by sector-specific support.
Targeted Support to Strengthen the Textile Sector
Subsidised credit and improved export credit guarantees can drive modernisation while sustaining employment across India’s textile industry. Access to affordable finance for machinery and technology upgrades allows manufacturers to expand capacity without compromising skilled jobs. The seven PM MITRA Parks sanctioned nationwide will provide integrated infrastructure for spinning, dyeing, garmenting, and allied activities, offering logistics efficiencies and clustering production at scale. These parks are designed to attract domestic and foreign investment while reducing operational costs across the value chain. Linking financial support with modernised facilities strengthens the sector’s ability to meet growing global demand, enhance domestic value addition, and maintain competitiveness under international pressures. Implementing these measures ensures that the textile sector is equipped for resilient growth and lays the groundwork for the broader manufacturing ecosystem to benefit from strategic interventions.
Conclusion
India could strengthen its manufacturing sector by creating an ecosystem where strategic interventions and policy support work together. Opening new export markets through trade agreements can help companies diversify and compete internationally. Incentives that reward production and employment in labour-intensive industries will encourage firms to maintain their workforce and expand capacity. Adjusting input costs for critical materials can reduce financial pressure, enabling investment in modern equipment and processes. Sector-specific measures for textiles, including accessible credit and modern infrastructure, can enhance operational efficiency and cluster production. Budget 2026 provides the opportunity to turn these strategies into action, linking policy with practical outcomes. Implementing this integrated approach can safeguard jobs, foster domestic value addition, and prepare Indian manufacturers to thrive amid global challenges and long-term growth opportunities.
