The domestic textile industry took a big hit during the global financial crisis. The decline in textile exports and contraction in domestic demand resulted in sharply lower revenues and operating margins. Though the global economic recovery since the first quarter of the current financial year has raised hopes, the Indian textile industry is now facing the heat from soaring cotton prices.

The spot price of benchmark Shankar cotton is up 15% since March this year, with the month of November seeing the maximum increase. Cotton prices are expected to rule firm in the coming months, as incremental domestic demand is outpacing incremental supply. Not surprisingly, cotton traders expect a further tightening as the cotton harvest in all key-growing areas of country is likely to be significantly below par this year. While in the north zone the crop has been hit by poor monsoon; in the western zone it took a beating from the Phyan cyclone, which spoiled standing crops. In the South, the crop was damaged by late monsoon floods.

Rising prices have begun to hit wholesale prices of manufactured cotton textiles, which were up by 4% during April-November this year. The textile manufacturers are lobbying the government to suspend the registration of export contracts till February 2010, but the government has declined to put any such restriction on exports at this juncture, which will add to the woes of the textile industry.