The Indian textile sector continues to demonstrate resilience, with a strong demand outlook for the coming years, according to a report by Systematix Institutional Equities Research. Despite challenges like higher domestic cotton prices compared to international rates, several key factors are supporting growth in the industry. These include normalizing channel inventories at global retailers, a potential tariff hike by the United States (US) on Chinese textile imports, rising labour costs in Vietnam, and political instability in Bangladesh, all of which are expected to benefit Indian textile companies.

Key Challenges and Opportunities for Indian Textile Companies

The report also highlights potential capacity constraints among Indian garment manufacturers, which could limit their ability to fully capitalize on the growing global demand. However, this challenge comes alongside positive macroeconomic conditions, including stable cotton prices, favorable foreign exchange rates, and a continued focus on operational efficiency. These factors are expected to drive profitability growth for Indian textile firms in the upcoming quarters.

The financial performance of Indian textile companies in the past year reveals an 11% revenue growth, with an 11% increase in earnings before interest, taxes, depreciation, and amortization (EBITDA) and a remarkable 28% rise in profit after tax (PAT). This growth was aided by a 10% decline in cotton prices and stable yarn rates, indicating that despite the initial challenges posed by cotton prices, Indian textile companies have successfully navigated these obstacles and emerged stronger.

Government Support and Budget Priorities

The Union Budget 2025-26 places significant emphasis on strengthening the textile sector, with initiatives aimed at improving cotton productivity, restructuring fabric duties, and further supporting domestic manufacturing. The government’s increased budget allocation for the sector—from Rs. 4,420 crore (US$ 508.8 million) in 2024-25 to Rs. 5,270 crore (US$ 606 million) in 2025-26—underscores its commitment to fostering growth and ensuring the long-term viability of India's textile industry.

The Productivity Linked Incentive (PLI) scheme, designed to improve cotton productivity, promote sustainability in cotton farming, and support the growth of technical textiles (TT), is expected to drive sectoral expansion in the coming years. As part of the Union Budget proposal, a higher customs duty on fabric imports will provide a further boost to Indian technical textile producers, making the sector more competitive on the global stage.

Cotton Production and Price Trends

The Cotton Association of India (CAI) has recently revised its 2024-25 cotton production estimate down by 7.8% YoY, forecasting 30.17 million bales of cotton. In contrast, the ICAR-Central Institute of Cotton Research (CICR) estimates a higher production of 32.0 million bales, which could ease supply constraints and help stabilize cotton prices.

As of Q2FY25, international cotton prices have declined to Rs. 58.21-59.08 (US$ 0.67-0.68) per pound, while Indian cotton prices have risen to Rs. 54,000-55,000 (US$ 621-633.07) per candy, translating to about Rs. 69.50 (US$ 0.80) per pound. These figures suggest that while domestic cotton prices are higher, they are likely to remain stable in the near term due to a predictable cotton crop, ensuring manageable input costs for Indian textile companies.

The Role of Technical Textiles in Sector Growth

The expansion of the technical textile (TT) market will play a crucial role in the long-term growth of the Indian textile sector. Technical textiles, which are used in a variety of non-apparel applications such as medical textiles, industrial textiles, and automotive textiles, represent a promising segment. The Indian government’s focus on fostering this segment through policy support and budget allocations will likely accelerate its development, providing new growth avenues for Indian textile companies.

Conclusion: A Positive Outlook Despite Challenges

Despite some challenges like capacity constraints and higher cotton prices, the Indian textile sector is well-positioned for sustained growth, driven by global demand, government initiatives, and a strategic focus on efficiency and competitiveness. With the backing of the Union Budget 2025-26, revised cotton production estimates, and the continued expansion of the technical textile market, Indian textile companies are poised to strengthen their global position in the coming years.

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