Cotton yarn manufacturers in India may not add much to capacity in the next five years. Reason: a decline in exports to China and slowing purchases from local fabric makers, who prefer to use manmade fiber than yarn; demonetisation-induced cash crunch has forced the closure of smaller spinning mills.

By the end of financial year 2016, India had 50 million spindles. There is overcapacity and so the cotton yarn industry is expected to add only about three million new spindles between 2016 and 2021. Since 2014, China has preferred to use its internal resources rather than rely on imports. So its cotton yarn imports from India have declined consistently.

India’s cotton yarn production is estimated to fall by about five to seven per cent in financial year 2017. High cotton prices and easy availability of manmade fibers at competitive rates have led to the slower growth of production of cotton yarn. Though yarn exports to China are likely to remain low, demand for yarn in other export markets including Vietnam, Bangladesh and Pakistan is likely to remain healthy. India’s cotton yarn exports are likely to be at 1,250 million kg for financial year 2017 as against 1,309 million kg in financial year 2016.