India: Cotton market sentiment firms as exporters push for zero-duty EU access

• India-EU FTA seen as potential demand catalyst for cotton yarn, fabric exports
• Spinning millers eye demand revival, but price impact hinges on deal clarity

India’s cotton market has turned cautiously optimistic after textile exporters urged the government to secure zero-duty access for cotton yarn, fabric, and garments under the proposed India-EU Free Trade Agreement (FTA). Exporters have highlighted that tariff elimination is critical to restoring competitiveness in the EU, one of India’s largest value-added cotton textile destinations. Market participants expect negotiations to reach a decisive stage by end-January, keeping trade sentiment active across the cotton value chain.

The push comes at a time when India’s cotton textile exports to the EU are estimated at around USD 4.5-5.0 billion annually, accounting for roughly 20-22% of India’s total cotton-based textile exports. At present, Indian cotton yarn and fabrics face EU import duties in the range of 4-8%, while garments attract duties of 8-12%, making Indian shipments costlier than competitors such as Bangladesh, Vietnam, and Turkiye, which enjoy preferential access. Exporters argue that zero-duty access could immediately improve order inflows, particularly for yarn, home textiles, and basic cotton garments, which are highly price-sensitive.

From a cotton market perspective, this demand-side push is significant. Spinning millers have been operating at sub-optimal capacity utilisation over the past year due to muted export orders, weak price realisation, and margin pressure. Yarn exports in 2024 were already down by an estimated 20-25% y-o-y, reducing raw cotton offtake despite comfortable domestic availability. With India’s cotton production for 2025-26 currently estimated at around 315-320 lakh bales (1 bale is 170 kg) and arrivals progressing smoothly, prices have remained largely range-bound in recent months. Any improvement in yarn and fabric exports could directly lift cotton consumption by spinning millers, tightening the demand-supply balance.

The timing of the FTA discussion is also important. EU retailers have begun placing advance enquiries for the next buying cycle amid stabilising global cotton prices and easing freight volatility. If tariff clarity emerges soon, exporters expect a pick-up in bookings from the March-April quarter. This would support yarn demand, particularly in medium and fine counts, and could lend stability to cotton prices in key domestic mandis, which have so far been capped by steady arrivals and cautious mill buying.

Outlook

Looking ahead, the market will closely track the outcome and implementation timeline of the India-EU FTA. A confirmed zero-duty framework could shift medium-term demand expectations, encouraging spinning millers to run higher capacities and build cotton inventories more confidently. This would be supportive for prices during the latter half of the season, especially if export orders materialise as expected. However, delays, partial tariff concessions, or extended implementation timelines may limit the immediate impact, keeping cotton prices largely driven by arrivals, global cues and yarn realisation trends. For now, sentiment has improved, but sustained price support will depend on how quickly policy optimism translates into actual export demand.