The outlook for India鈥檚 cotton industry is improving, according to analysis by India Ratings and Research (Ind-Ra). The organization has revised its previous outlook from negative in FY17 to stable in FY18. A number of factors have contributed to this change, which is promising for the country鈥檚 economy.
Cotton makes up the majority of India鈥檚 textile industry, which is worth approximately 4% of its GDP. According to IBEF, textiles contribute 14% to industrial production and 13% to total export earnings. The industry is the second-largest employer in the country, providing jobs to tens of millions of people both directly and indirectly. Worldwide, India is second only to the United States in terms of clothing and textile exports.
India鈥檚 cotton industry is stabilizing thanks to steady domestic demand, healthy capacity use, and stable input prices. Cotton acreage and supply have increased in the country and global supply has fallen, meaning that there is sufficient demand to meet a rise in supply. The industry has been supported by fiscal incentives and the implementation of a Goods and Services Tax (GST) that will make its exports more competitive.
In FY18, Ind-Ra expects cotton acreage to rise by 10%-15% and reach approximately 120 million hectares, allowing for greater production. Textile companies can expect to have sufficient capacity to accommodate this production volume without needing to invest in more machinery or other large purchases, giving them the opportunity to reduce debt and putting them in a better position financially.
The US leaving the Trans-Pacific Partnership (TPP) is also good for the Indian cotton industry, as it is likely to redirect investments and trade from Vietnam to India. Additionally, the country has strong trade agreements with Europe and the US, which will improve its exports significantly. It is also possible that domestic demand will be higher than expected.
These international scenarios are not certain, however. American and European polices around trade with other countries may change, as several governments in these regions are leaning towards more protectionist policies. If this is the case, it could lead to exports falling and plants operating under capacity. Another risk is international production levels: if these are higher than expected, they will increase global supply and threaten demand for Indian cotton products.
Despite these concerns, the overall outlook for India鈥檚 cotton industry is more positive than it was for the previous year. Even if not all of these predictions turn out as well as expected, there are enough factors at play to help mitigate any one negative event. With so many jobs stemming from this industry, an upswing in its prospects bodes well for India鈥檚 economy as a whole.
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