- Cotton and yarn inflation is raising pressure across the textile value chain.
- Trade agreements are improving export competitiveness, but cost pass-through remains critical.
India’s textile industry enters FY27 with a sharper contrast between improving export opportunities and rising production costs. Domestic cotton prices increased about 19% between January and May 2026 to around INR 176/kg, while yarn prices rose about 22% to around INR 290/kg, according to ICICI Direct Research. Higher raw-material costs are now moving through spinning, weaving, processing and garment manufacturing, putting pressure on profitability where selling prices are fixed in advance.
Cotton relief offers only partial protection
The government’s temporary exemption of customs duty on cotton imports from June 1 to October 31, 2026 is intended to improve domestic availability and ease input costs. This could narrow the gap between domestic and international cotton prices, although the actual benefit will depend on global cotton prices, freight and currency movements.
The pressure also extends beyond cotton. Crude-linked textile chemicals, including dyes, have faced higher prices, creating additional cost exposure for manufacturers using man-made fibres and synthetic inputs.
Export competitiveness is improving
The demand outlook provides an important counterweight. India’s textiles and apparel exports, including handicrafts, rose 1.8% to INR 325,339 crore in FY26, despite fluctuations in global demand and input costs.
The conclusion of the India-European Union Free Trade Agreement could further strengthen competitiveness. The agreement provides duty-free access for Indian textiles and clothing, where previous tariffs were as high as 12%, improving India’s position against competing sourcing countries.
Pricing power will decide FY27 margins
Export support mechanisms also remain relevant. The Rebate of State and Central Taxes and Levies (RoSCTL) scheme for apparel and made-ups, and the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme for other eligible textile products, have been extended through September 30, 2026.
The key FY27 question is therefore whether exporters can pass higher cotton, yarn, labour and other input costs to global buyers. Volumes could improve before margins do. Manufacturers with stronger procurement, vertical integration, automation and higher-value products should be better positioned to protect profitability.
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