Banking Big on Cotton

With the government’s Rs 6 billion investment in the cotton sector and its push to enhance ELS cotton cultivation through advanced science and technology, it remains to be seen how the industry will leverage this support to shape a stronger future for the cotton sector.

Over the last 2-3 years, India’s cotton industry faced significant challenges that impacted both production and exports.

The 2024-25 cotton season witnessed a notable decline in production, estimated at 29.9 million bales—the lowest in six years. This reduction is attributed to factors such as pest infestations, adverse weather conditions, and deteriorating seed quality. Additionally, farmers have been shifting to higher-yielding crops like pulses and maize, further decreasing cotton cultivation areas. However, as per FAS USDA, unexpected heavy rainfall in southern India damaged standing crops such as maize, cereals, and horticultural produce, prompting some farmers to replant cotton. In southern India, the majority of both irrigated and rainfed cotton is sown between September and October, while rainfed crop planting in the southern districts extends until November. In parts of Karnataka and Andhra Pradesh, local cotton is typically sown from August to September. Meanwhile, cotton sowing in the rice fallows of Andhra Pradesh and Tamil Nadu occurs between mid-December and mid-January.

The decline in production (see Table 1), coupled with increased domestic prices, has reduced India’s competitiveness in the global market. Consequently, cotton exports are projected to decrease to 1.3 million bales. This downturn affects not only raw cotton exports but also cotton yarn shipments to key markets such as Bangladesh and China.

There are also some concerns regarding labour practices within the industry. The presence of child labour and forced labour on several cotton farms, raising ethical and legal concerns that could impact international trade relations.

In response to these challenges, Nirmala Sitharaman, Union Finance Minsiter, during the budget 2025-26, unveiled five-year mission aimed at enhancing cotton production, with a particular focus on extra-long staple (ELS) cotton. This initiative emphasises research support and the development of high-yielding seed varieties to enhance productivity and reduce import dependency. Out of the total Rs 52.72 billion allotted for the textiles industry, Rs 6 billion has been allotted specifically for this mission.

Table 1: Kharif 2024 cotton sowing progress (in million hectares)

Source: Ministry of Agriculture and Farmers Welfare

Santosh Katariya, President, Clothing Manufacturers Association of India, welcomes the decision of the government as he says, “Launch of the Cotton Mission could be a big step; measures to improve competitiveness of export sector, domestic manufacturing capacities, and ease of doing business will all help give an impetus to manufacturing; lowering of basic customs duties on certain textile machineries will also provide an impetus.”

India heavily relies on imports for ELS cotton (see Figure 1), which has fibre lengths exceeding 35 mm and is widely used in the production of premium-quality fabrics. Sitharaman said that the best of science and technology support will be provided to farmers.

Figure 1: Indian cotton imports by month

Source: Directorate General of Foreign Trade, Ministry of Commerce, and Industry

Rakesh Mehra, Chairman, CITI, thanks the Government for considering the long pending  demand of industry and announcing the Mission for Cotton Productivity which will facilitate  significant improvements in productivity and sustainability of cotton farming, and promote extra long staple cotton varieties. “It will not only address the industry’s concern of declining cotton  productivity but will also reduce our dependency on imports for specialised varieties of cotton like ELS.”

The five year program has also bought in excitement amongst the startups, “This year’s budget takes meaningful steps toward strengthening India’s manufacturing and export ecosystem, with a clear focus on productivity, innovation, and global reach. The focus on boosting cotton productivity, setting up a digital public infrastructure for international trade, and launching an Export Promotion Mission with sector-specific targets is a transformative step for India’s manufacturing and export ecosystem,” quotes Ritesh Khandelwal, Co-founders, ZYOD.

The country was producing around 2.5 million bales of extra-long staple (ELS) cotton during 1980s when the crop was remunerative to the farmers and currently producing only around 0.5 million bales and the industry has potential to consume 3 million bales.  The industry is importing around 1.2 million bales of ELS cotton having 32.5 mm and above and textile business size of the ELS cotton value chain is estimated at around Rs 600 billion per year and giving direct jobs to around 1.2 million people.  Dr S K Sundararaman, Chairman, The Southern India Mills’ Association (SIMA), points out that the value addition in the ELS cotton textile product is around ten times and has huge potential to boost export if the home-grown ELS cotton is made available.

Additionally, Sundararaman informs that the Ministry of Agriculture and Ministry of Textiles have already been operating on a Special Project on cotton covering 15,000 hectare of land in all the leading cotton producing States focusing on High Density Planting and ELS cotton productivity improvements and the pilot projects have revealed that there is a scope to increase the productivity from 30 to 50 per cent.  At the initiative of Government, the Cotton Textile Export Promotion Council (TEXPROCIL) jointly with other employers organisations has already launched “Kasturi Cotton Bharat” and the high quality Indian cotton is getting branded. He further says, “The announcement of Rs 6 billion to improve productivity and sustainability of cotton, promote ELS cotton and best of science and technology to cotton farmer on a mission mode approach giving thrust for high yielding seeds to align with 5F Vision of PM Modi is a step in right direction.”

Quick facts about ELS cotton

ELS cotton is a premium cotton variety with fibres longer than 34 mm, known for superior strength, softness, and durability.

Leading producers of ELS cotton

Country	Major ELS cotton variety	Country
United States	Pima	~40%
India	Suvin, DCH-32	~15-20%
Eqypt	Giza	~15%
China	Xinjiang ELS	~10%
Peru	Tangüis, Pima	~5%

Source: World Bank Group

Note: Percentages are approximate and may vary annually due to climatic and market conditions.

Applications of ELS cotton

• Textiles: High-quality garments like shirts, dresses, and suits.
• Home furnishings: Luxury bed linens, towels, and draperies.
• Industrial uses: High-strength sewing threads and medical textiles.
• Blended fabrics: Combining with other fibres for enhanced fabric qualities.

Apart from cotton, the Indian government has been actively promoting various other segments within the textile industry to enhance its growth and sustainability.

Tightening import regulations: One of the significant steps taken in this direction is the protection of domestic manufacturers. To achieve this, the government has revised the basic customs duty (BCD) on knitted fabrics, setting it at 20 per cent or Rs 115 per kilogram, whichever is higher. This move is expected to make imported fabrics less competitive, thereby providing much-needed support to local textile producers.

The imposition of BCD on knitted fabrics under Chapter 60 of the Harmonized System (HS) codes covers only nine specific HS codes. However, these nine HS codes account for merely 35 per cent of the total fabric imports, leaving the remaining 65 per cent of imported fabrics outside the purview of this duty. This gap raises concerns about unchecked imports, which could continue to affect the domestic industry adversely.

One of the primary reasons for this measure is the growing problem of fabric smuggling into the country. Many importers have been under-invoicing fabric prices and misdeclaring HS codes to circumvent the Minimum Import Price (MIP) of $3.50 per kilogram, which was previously imposed by the government. This practice allows unscrupulous traders to avoid paying higher tariffs, ultimately hurting local textile manufacturers.

Sidharth Khanna, President of the Northern India Textile Mills’ Association (NITMA), has welcomed the government’s decision, acknowledging it as a crucial step in addressing unfair competition in the market. However, he has also recommended additional measures to ensure the effectiveness of the policy.

Khanna has urged the government to extend the BCD to cover all HS codes under Chapter 60, rather than just the current nine, as only a fraction of total fabric imports are being regulated. He pointed out that importers have historically manipulated HS codes to evade trade restrictions, and they are likely to continue doing so to bypass the newly imposed BCD.

“To impose BCD on all HS codes falling under Chapter 60 of synthetic knitted fabrics as currently only 35 per cent of the total imports are being covered under the 9 HS codes. Furthermore, importers have been jumping HS codes to evade the scope of MIP in the past & will now do so to evade BCD also. This can be easily seen from the fact that total imports of fabric under Chapter 60 are increasing despite imposition of MIP, just that imports under MIP codes decreases which is more than compensated by the increase in non-MIP HS codes. So, this 35 per cent volume will be immediately shifted to remaining HS codes.”

Additionally, Khanna has called on the Enforcement Directorate (ED) to launch a thorough investigation into instances of under-invoiced imports of synthetic knitted fabrics under Chapter 60. He emphasised that all customs data is already on record, and any consignments cleared at prices below $3.50 per kilogram in the past 12 months should be closely examined. He also recommended imposing heavy penalties on all such consignments to deter further manipulation of fabric prices.

Such measures are necessary to protect the livelihood of millions of textile workers in India. By curbing fraudulent trade practices and ensuring fair competition, the domestic textile industry can be safeguarded against exploitative import strategies.

The Indian textile industry plays a crucial role in the country’s economy, providing employment to a vast workforce and contributing significantly to exports. With these protective measures in place, the industry stands to benefit from reduced unfair competition and enhanced support for local manufacturers. However, effective enforcement and policy expansion will be key to ensuring that the intended benefits of these reforms reach the domestic industry in full measure.

Relief measures for MSMEs: Recognising the pivotal role of MSMEs in the textile sector, the government has allocated Rs 52.72 billion to the Ministry of Textiles, marking a 19% increase from the previous year’s budget of Rs 44.17 billion. This substantial allocation underscores the government’s commitment to strengthening the textile industry, which is predominantly driven by MSMEs and accounts for more than 45 per cent of India’s exports. A significant portion of this budget, Rs 6.35 billion, is earmarked for the Amended Technology Upgradation Fund Scheme (ATUFS). This scheme aims to modernise the textile industry by upgrading technology, thereby enhancing productivity and competitiveness. Additionally, the government has issued a list of exempt machinery and looms used for textile production, facilitating easier access to advanced equipment for MSMEs.

Figure 2: Indian cotton expors by month

Source: Directorate General of Foreign Trade, Ministry of Commerce, and Industry

The finance minister expanded the list of fully exempted textile machinery by including two types of looms to boost domestic production of technical textile products. The Technology Upgradation Fund Scheme (TUFS) was first introduced in 1999 to modernise and strengthen the industry. Over time, it has undergone several modifications, including the Modified Technology Upgradation Fund Scheme (MTUFS), Restructured Technology Upgradation Fund Scheme (RTUFS), and the Revised Restructured Technology Upgradation Fund Scheme (RRTUFS), before evolving into ATUFS in January 2016. According to the textile ministry’s 2023-24 annual report, as of March 31, 2022, a total of 14,389 UIDs had been automated and issued under ATUFS, with an estimated project cost of Rs 691.60 billion.

The scheme is designed to enhance ease of doing business while supporting the broader goals of employment generation and export promotion through the Make in India initiative, ensuring “zero effect and zero defect” in manufacturing.

It seeks to boost investment, productivity, and employment in the textile industry while also encouraging growth in domestic textile machinery manufacturing. Additionally, the scheme promotes higher quality standards in textile processing and aims to reduce dependence on fabric imports.

By supporting the garment and apparel industry, ATUFS aims to drive exports and job creation, particularly benefiting women, while increasing India’s presence in the global textile market.

Focus product scheme for footwear and leather industries: The footwear and leather sectors have received a significant boost through the introduction of the Focus Product Scheme. This scheme is designed to enhance productivity, quality, and competitiveness within these industries. Key components of the scheme include support for design innovation, component manufacturing, and modernisation of production machinery. These measures are anticipated to generate over Rs 4 trillion in revenue and Rs 1.11 trillion in exports. Moreover, the scheme is projected to create approximately 2.2 million jobs, thereby addressing employment concerns and contributing to economic development.

The scheme will significantly boost productivity, competitiveness, and exports in the footwear and leather sectors. The reforms are expected to stimulate investments by supporting design capacity, component manufacturing, and machinery upgrades. Additionally, changes in export duties are anticipated to bolster the tanning industry and enhance the export of value-added products.

Broader economic implications: Beyond sector-specific initiatives, the budget includes tax relief measures aimed at increasing disposable income, thereby stimulating economic growth. The Reserve Bank of India (RBI) has noted that the Indian economy is likely to benefit from rural demand picking up and government-announced tax relief supporting urban consumption.

Redefining cotton’s role

The Indian government must ensure that cotton receives the same level of emphasis as man-made fibres (MMF), given that India is one of the world’s largest cotton producers. While the government’s Cotton Mission is a step in the right direction, there is an urgent need to strengthen cotton cultivation, improve farmer support, and boost exports. Cotton plays a crucial role in India’s textile industry, providing livelihoods to millions of farmers, textile workers, and traders. However, declining production, shifting crop preferences, and increasing imports of extra-long staple (ELS) cotton have weakened the sector’s competitiveness (see Figure 2).

India should capitalise on its rich cotton-growing heritage by investing in research, high-yield seed varieties, and sustainable farming practices. Cotton has the potential to drive exports if marketed effectively as a premium product under initiatives like “Kasturi Cotton Bharat.” The government must promote homegrown ELS cotton to reduce import dependency and enhance value addition within the textile supply chain. Additionally, policies should support fair pricing, efficient procurement, and technological advancements for cotton farmers.

Global markets continue to seek high-quality cotton textiles, and India can position itself as a leading supplier by addressing domestic challenges and ensuring fair trade practices. By bolstering the cotton sector, the government can not only enhance India’s export potential but also safeguard the livelihoods of millions involved in the industry, ensuring long-term growth and sustainability.