The demand of textile value chain, including yarn, fabric and apparels is likely to contract by 25-35 per cent in the financial year 2021 due to ongoing economic slowdown following lockdown to curb the spread of the Covid-19 pandemic, finds a study by India Ratings and Research.

The demand of yarn, fabric and apparels is set to remain muted throughout first half of the financial year 2020-21. The FY21 demand growth would typically depend on discretionary spending, and thus a gradual recovery in household income over the second half of the current financial year between October 2020 and March 2021.

Normalcy in revenue across the textile value chain may return by the second half of the financial year 2022, on the back of reopening of the retail space, a normal monsoon, the festive and wedding season. The demand revival will also depend on government measure to incentivise exports, the study forecasts.

Weak demand of value added products like yarn, fabric and apparel is bound to impact raw material prices. The study forecasts a correction in cotton prices over 2QFY21 from the levels of Rs 95 per kg as of May 2020 due to a low demand and high holding levels at Cotton Corporation of India. However, holding stocks could only provide a short-term relief. Some of the inventory is expected to be exported, given the advantage of lower prices and rupee depreciation.