Bengaluru: After months of navigating volatile raw material costs, Indian textile and apparel exporters are bracing for a fresh round of uncertainty as they await clarity on US tariff negotiations later this month, while the renewed conflict in West Asia threatens to raise freight costs and disrupt supply chains.
The industry had only recently begun to get some relief from rising input costs. Cotton prices had surged earlier this year on concerns that an El Niño-led impact would reduce domestic production. Prices later eased after the Centre removed the import duty on the extra-long staple (ELS) cotton (with a staple length of 32 mm and above) to improve domestic supplies of premium fibre used in fine-count yarn and high-end textiles. Higher imports also helped stabilise the market.
Some exporters had already begun preparing for raw material volatility much before cotton prices peaked. "We anticipated that cotton prices could rise because of El Niño concerns, so we worked with spinning mills to pre-book yarn, lock in prices and secure production capacity well in advance," said Shubhang Goenka, director at Chennai-based textile and apparel exporter Meenakshi India Ltd.
By mid-May, benchmark 29 mm Gujarat cotton prices had surged about 10% to ₹65,800 per candy (356 kg), up from ₹59,700 a month earlier, driven by concerns over domestic output and a weakening currency amid the West Asia conflict.
Cotton costs
To be sure, domestic cotton prices have started firming up again. According to the Cotton Association of India (CAI), benchmark 29 mm cotton spot price rose ₹400 to ₹65,000 per candy on 14 July, while 28 mm cotton increased ₹500 to ₹64,200 per candy. Globally, cotton futures on the Intercontinental Exchange (ICE) climbed more than 6% during the week ended 10 July, reflecting renewed concerns over global supply.
Analysts said the impact of rising cotton prices differs across the textile value chain. Cotton is the primary raw material for home textiles and textile products such as bed linen, towels and fabrics, while apparel manufacturers, which make garments and clothing, rely more heavily on polyester.
“Global cotton prices are expected to remain firm because of production challenges in key producing countries, with Indian prices likely to broadly follow global trends. However, since for the readymade garment (RMG) segment, cotton constitutes nearly 30% of overall raw materials (balance being man-made yarns including polyester),” said Shounak Chakravarty, director at Crisil Ratings. Raw material forms about 55-60% of the cost. readymade garment manufacturers can pass on the increase in cotton prices to the consumers without much impact on demand, he added.
Market exposure
India and the US are expected to conclude negotiations on an interim trade agreement later this month. While both countries say a framework is ready, discussions are continuing over the final tariff structure, with India seeking a competitive tariff advantage over rival sourcing destinations. The US is India's largest export market for textiles and apparel, accounting for about $10.5 billion in shipments.
While exporters say demand remains healthy, uncertainty over US tariffs is making global buyers more cautious.
"The market is very complicated right now," said Marc Lewkowitz, president and chief executive of Supima, a US-based non-profit that promotes American Pima cotton globally. “You have geopolitical tensions, climate change affecting cotton production, freight disruptions and uncertainty over tariffs. There are multiple headwinds facing the textile industry.”
He said brands and retailers are placing smaller and more frequent orders instead of committing to large contracts as they wait for greater clarity on tariffs.
Goenka said tariff uncertainty has made buyers more cautious. After the US announced reciprocal tariffs, Meenakshi India shared a part of the additional duty burden by offering discounts to retain US customers. Buyers are now waiting for clarity on US tariffs before placing larger orders as India's competitiveness will depend not only on its tariff rate but also on how it compares with rival sourcing destinations such as Vietnam and Bangladesh.
“RMG industry's direct exposure to the US market is relatively limited. Overall, about 25-30% of revenues of India's ready-made apparel segment comes from exports, with only about 8-10% coming from US market. Also, various bilateral free trade agreements would also help diversify export opportunities further," Chakravarty said. He added that the India-UK free trade agreement would also help diversify export opportunities.
Indian exporters say the uncertainty has not affected demand yet, but it has made planning much harder.
"The situation is stable at the moment," said Shailesh Goenka, director at Texport Industries. "Cotton prices have come down from their peak and demand has been fair. As far as tariffs are concerned, nobody knows what will happen. There is no point speculating—we have to take it as it comes."
The renewed US-Iran conflict has emerged as another key concern.
"If the conflict continues, it can become a stumbling block for the industry," said Alexander John, chief executive of Future Apparel Manufacturing. “Businesses like ours depend heavily on planning. Any disruption to logistics or shipping can affect deliveries and increase costs.”
While Meenakshi India did not face major shipping disruptions because most of its exports are shipped on a free-on-board basis, Goenka said the conflict pushed up prices of polyester and packaging materials through higher petrochemical costs, although those prices have begun to stabilise in recent weeks.
Growth outlook
Despite the near-term uncertainties, exporters remain optimistic about the medium-term outlook.
John said the India-UK free trade agreement and the recently concluded India-EU trade deal have significantly improved sentiment, while exporters remain hopeful that a favourable India-US deal will further strengthen India's position against competing sourcing hubs.
Meenakshi India's Goenka echoed that optimism, saying enquiries from UK and European customers have picked up after the trade agreements, with conversations that had stalled earlier now moving towards order discussions. "The FTAs are going to be a game changer for India," he said. He expects the benefits to start reflecting in business from the fourth quarter of FY27.
"The only concern is that if demand picks up sharply, the industry will also need more workers. Labour availability continues to be a challenge across manufacturing hubs,” said John.