Production of cotton yarn in India declined 1.8 per cent in 2016-17. Exports of cotton yarn fell 7.9 per cent. This was due to a 22.7 per cent fall in exports to China, which is India’s largest cotton yarn market but Chinese fabric manufacturers preferred to purchase local cotton yarn instead of importing yarn from other countries. Nevertheless, there was a 4.1 per cent increase in exports to countries other than China.

Demonetisation also affected production of cotton yarn. The textile industry is highly unorganised and wages are largely in cash. Due to the cash crunch in the country, manufacturers were unable to pay wages which resulted in laborers’ not reporting to work. Demonetisation also curtailed consumer spending, resulting in a dip in the sale of apparels and other end-products of the textile industry. This led to a fall in demand in the entire value chain.

An increase in price of the industry’s main raw material, cotton, also caused problems for the industry. Annual average prices of medium staple cotton were up 19 per cent year-on-year. Spinning mills were pushed into losses as the rise in raw material prices could not be fully transferred onto the customers. This pushed cotton yarn manufacturers into losses. Hence, yarn manufacturers cut production in order to minimise losses.