GST conundrum, cotton crunch, and market imbalances, India’s textile industry at a turning point

In a recent online meeting organized by the Southern Gujarat Chamber of Commerce and Industry (SGCCI), leading textile associations from across the country united around a pressing concern: the GST rate on yarns. Participants included representatives from the Confederation of Indian Textiles, Southern India Mills Association (SIMA), Synthetic and Rayon Textiles Export Promotion Council (SRTEPC), Nylon Spinners Association, Association of Synthetic Fiber Industry, Polyester Textile Apparel Industry Association, Pedexil, and the New Delhi Textile Association. And the consensus was clear. While the Central government’s move to eliminate the inverted duty structure at the fabric stage was welcomed, yarn continues to suffer from a structural flaw. The 18 per cent GST on yarn raw materials has created a bottleneck, with large sums of Input Tax Credit (ITC) locked up with the government.

“We’ve only solved half the problem,” said an SGCCI official. “There should be no inverted duty anywhere in the MMF textile value chain. The liquidity crunch is squeezing mills and exporters alike.”

Cotton production hits a 15-year low

The GST issue comes against the backdrop of a worsening cotton crisis. India’s cotton output in FY25-26 is estimated to fall to 25 million bales, the lowest in 15 years. Pink bollworm attacks, fungal infections, and stagnant productivity are the chief culprits. Despite having the world’s largest area under cotton cultivation, India’s yield stands at 480 kg/ha, well below the global average of 800 kg/ha. The reliance on traditional farming practices, lack of access to quality seeds, and insufficient weed management has kept productivity low.

Rising input costs and cheaper imported cotton have also eroded farmers’ margins. Many are forced to sell below the government’s Minimum Support Price (MSP), while global price volatility and tariff barriers further reduce competitiveness in export markets. Cotton farming has become uneconomical for smallholders. Imports are cheaper, but they destroy local livelihoods, say farmers in Maharashtra’s Vidarbha region.

Table: India’s cotton production trends

Diverging yarn markets

The stress on cotton is spilling over into the yarn market, though regional trends differ. For example, in Mumbai, demand has slowed sharply. Prices for coarse counts have dropped as traders and mills avoid stocking, instead buying only to meet immediate requirements. Duty-free imports have added to price pressures, while mills have cut production to protect margins. Mill owners in Mumbai say they are facing a payment crisis. Buyers are cautious, liquidity is tight, and the pressure is building down the chain.

In contrast, Tiruppur, the knitwear hub of India, has remained relatively insulated. Its focus on sustainable practices such as zero liquid discharge (ZLD) technology, renewable energy usage, and social compliance audits has turned it into a preferred sourcing destination for Western buyers. Demand from the US and Europe has kept yarn prices stable, even as other hubs struggle. In Gujarat, however, the picture is closer to Mumbai’s, with traders cutting prices under pressure to clear deliveries and free up cash.

Table: Cotton yarn price trends (Rs/kg)

MMF faces GST roadblock

While cotton struggles, the man-made fiber (MMF) sector is being touted as India’s next growth engine. Globally, 70 per cent of textiles are MMF-based, but in India, cotton still accounts for a majority share. The Indian MMF textile market, valued at $20 billion in 2024, is expected to grow at a 7-8 per cent CAGR through 2030, driven by demand for blended fabrics, technical textiles, and performance wear. However, the unresolved GST issue threatens to derail this transition. The 18 per cent GST on MMF yarns, compared to lower rates on fabrics, leaves the industry struggling with inverted duty. As a representative of the Polyester Textile Apparel Industry Association, opines, the world has moved to synthetics, but India is stuck in a cotton-centric policy mindset. To compete globally, we must support MMF with rational GST.

Table: India’s textile fiber mix (% share in consumption, 2025)

Global competitiveness challenge

India’s textile industry employs nearly 45 million people, making it one of the country’s largest employers after agriculture. With Bangladesh, Vietnam, and Indonesia aggressively expanding their textile exports, India risks losing market share unless policy bottlenecks are addressed. Sourcing strategies of global retailers are shifting toward sustainability and compliance, areas where hubs like Tiruppur shine. Yet other regions remain constrained by cash flow, GST-related inefficiencies, and supply chain volatility. As one SGCCI participant summed up: “This is a defining moment. Rationalizing GST, modernizing cotton farming, and supporting MMF are not just industry demands, they are national imperatives for global competitiveness.”

The bottomline is that India’s textile value chain is at a crossroads. To unlock its full potential, policymakers and industry leaders need to focus on a few aspects. First, eliminate inverted duty across the textile chain by rationalizing GST; boost cotton productivity through modern seeds, pest-resistant varieties, and better extension services; promote MMF adoption to align with global demand; encourage sustainable practices that can help retain global buyers.

The choices made in the next 12-18 months will determine whether India consolidates its position as a global textile powerhouse or cedes further ground to more agile competitors.