India’s exports of cotton yarn between April and June 2019 were 35 per cent lower than last year’s exports for the same period. China used to consume 40 per cent of Indian cotton but not anymore. Chinese spinners buy domestic yarn, which is cheaper than India’s. Also, India has to bear a 3.5 per cent import duty while selling to China unlike Vietnam that doesn’t have to.

Up to 50 to 60 per cent fiber that is used in producing yarn in India is cotton, and India is among the largest producers of cotton in the world. But there has been an increase in the minimum support price of cotton by 25 per cent to 28 per cent while prices have fallen sharply in the global market. So the production cost of yarn has gone up in India and Indian prices are now not viable in the international market.

One reason for the liquidity crisis was demonetization, believes Mukesh Tyagi, Senior VP of the Northern India Textile Mills’ Association, or NITMA. The cash flow in the textile market was disrupted. GST also happened. Because earlier there was no tax on fabric, many decentralised sectors in the textile industry had to adjust with the new tax regime.