EU's circular economy legislation poses both challenges and opportunities for India's textile industry.
As EU aims for sustainability by 2030, Indian exporters must adapt to new regulations.
This is even when they're grappling with limited time and resources to transition towards cleaner production practices.
As Europe prepares to meet its 2030 circularity targets, its €376 billion fashion market is rushing to change how it procures. India’s textile exports market, 20 per cent of which is reliant on the European Union market, now faces regulatory challenges and, at the same time, an opportunity to move towards formalisation and cleaner production although with not much time and support in hand.
The European fashion industry is undergoing a shift. The EU Strategy for Sustainable and Circular Textiles (2022) was established to bring Europe's $376 billion fashion market into the loop of circularity by 2030.
Launched under the European Green Deal and Circular Economy Action Plan 2 (2020), the plan targets textiles industry, including clothing, home textile and footwear to become durable, repairable, recyclable, recycled-fiber dominant and hazard-free.
It has a core mechanism called Ecodesign for Sustainable Products Regulation (ESPR). ESPR was adopted in July 2024. It aims to improve the durability, reusability, upgradability and reparability of the product by enhancing of the possibility of product maintenance and refurbishment.
The objective is to make products more energy and resource-efficient, improving circularity. By increasing the recycled content, the regulation wants to reduce carbon and environmental footprints, limit generation of waste and improve the availability of information on each product’s sustainability.
ESPR will also set a limit on microfiber shedding for synthetic textiles (equivalent to 0.5g / kg per wash). The ESPR action plan also wants to ban destruction of unsold textiles. An estimated 4-9 per cent of all textile products put on the market in Europe are destroyed before use, amounting between 264,000 and 594,000 tonnes of textiles destruction each year. In this, about 22-43 per cent clothes bought online are returned, which ends up being destroyed. The ban on destruction will be enforced starting July 2026.
A Digital Product Passport (DPP) system is also being launched as part of the initiative, beginning February 2026. DPP will create a QR-code based information accessibility system which will enable anyone to scan the code and access information. It will have a unique ID to distinguish each product and will contain information on sustainability credentials like material composition, carbon footprints, durability metrics, repair / recycling instructions and compliance proof.
Under the harmonised Extended Producer Responsibility (EPR) scheme, producers will take the responsibility for collection, sorting and recycling from March 2028 onwards.
As part of EU Sustainable and Circular Textiles Strategy (2022), misleading sustainability claims will also be removed through mandatory verification, enforced via the Green Claims Directive and Directive (EU) 2024 / 825.
India is the 6th largest exporter of textiles and apparel in the world. In financial year 2024, the country accounted for 4.1 per cent global share, contributing 8.63 per cent to India’s total merchandise exports valued at $37.7 billion.
While the US remained India’s largest export market, India’s share of export to Europe stood at $7.6 billion in the financial year 2024-25 out of India's total $37.8 billion textile exports.
EU imposes between 8 per cent and 12 per cent taxation on import of products from India. While the Indian market is mostly focused on self-consumption, the export sector grew with a CAGR of 1.49 per cent between 2022–23 and 2024–25.
India hosts globally significant textile recycling hubs. Some of these plants have waste processing capacity of over 2,000 tonnes per day. These are labour-intensive units, produing an overall annual output of over Rs 10,000 crore (equivalent to roughly $1.09 billion) annually. It is estimated that recycling saves around 2.1 tonnes CO2-equivalent per tonne of textiles.
DPP will be maintained by EU. Although defined, it is a complicated technology. A recent study suggested there is a lack of empirical validation through real-world industrial implementation. The technology is still at its juvenile phase and full implementation will be challenging due to the kind of data and verification process which will be required under the scheme.
The supply chain also does not provide data on raw materials and sources of electricity due to their informal nature of operation. In addition to that, at times manufacturers restrict data sharing due to concerns over protecting sensitive information. If DPPs are viewed strictly as regulatory tools rather than strategic assets, it’s adaptability will be challenging.
The Indian textile recycling industry is largely concentrated in clusters in Panipat, Amroha and Bhojpur, and consists of a large share of micro, medium, small enterprises (MSME), with significant share of workers from the informal sector. According to Switch Asia estimates, there are about 14,800 MSMEs and 250,000 workers in Amroha, Panipat and Bhojpur. In reality, this number will be significantly higher with the additional presence of smaller clusters in other parts of the country.
These enterprises play a critical role in the global textile circular economy. They receive textile waste, both domestic and imported, and turn them into recycled raw materials.
The annual export turnover of Indian recycled textile industry to the EU is worth $1.7 billion. While the scale is large, these clusters, mostly run by small industries, face significant challenges such as outdated production technology, high water and energy usage (especially in areas with surface water constraints and depleting ground water resources) and non-compliance of occupational safety.
These units run on grid electricity and has a significant carbon footprint (1.4 MTPA in Panipat). Additionally, workers mostly underprivileged women and migrants are employed with low-wages. With the current situation, effective implementation of ESPR in this sector can be a challenge in ethical terms. Informal or unregistered recyclers cannot generate DPP traceability data.
India is already taking some initiatives to improve circular economy in its textile sector. The Resource Efficiency and Circular Economy Initiative in India (RECEIC) was launched during India's G20 Presidency in 2023.
The main objective of the initiative includes implementation of eco-design principles and circular product development, implementation of circular economy in cluster level markets within India, technology transfer from larger corporates to small manufacturers and sharing of cross-sectoral knowledge.
To further add value and knowledge development for DPP / ESPR compliance, the government of Germany funded the EU-India Resource Efficiency and Circular Economy Initiative (EU-I-RECEI) to work with Indian Industries.
However, at present, RECEIC has only 59 member organisations across its value chain. The programme was launched in 2025 with a funding of nearly €9.5 million (roughly Rs 101.7 crore). Initiatives like these are a good step towards circularity, achieving targets for nationally determined contributions and acquiring environmental, social and governance credentials.
Developing nations have their limitations. Neglecting the impact on the sector, which is mostly reliant on informal workforce, can have negative consequences.
The initial shift of industries from the developed nations happened for two reasons: To reduce labour cost and to safeguard the environment. A sudden mandate on data accountability will only benefit large established entities in a country like India, leaving small businesses and informal workforces either out of reach from the market or to give up to the demand of larger establishments connecting to their supply chain.
“For Europe, circularity in the textile sector is a strategic priority. India has a mature market. If EU provides the required technical and financial support, India's textile recycling sector has the potential to achieve transformative scalability. Further, the upcoming free trade agreements could present an opportunity to embed components on circularity-based systems, enabling market access for India's MSME recycling clusters,” said Nivit Kumar Yadav, director (industrial pollution) at the Delhi-based think-tank Centre for Science and Environment.
As the Indian textile sector faces growing external regularity, there is a need for transformation in the sector, not only to comply with external regulations, but also to counter the growing environmental and sustainability challenges within the country.