Relief for Spinning Mills: Exemption on Cotton Import Duty Expected to Improve Profit Margins
The Indian cotton textile industry—specifically spinning mills—has received a significant boost. The central government has extended the exemption on the 11% customs duty on raw cotton imports until December 31, 2026. This move is expected to help mills control raw material costs and sustain their profit margins.
While India is the world’s second-largest cotton producer (after China), domestic production forecasts for the current season are not encouraging. According to the Southern India Mills’ Association (SIMA), cotton production for the 2026-27 season is projected at approximately 28 million (280 lakh) bales. Typically, production exceeds 30 million (300 lakh) bales, whereas the industry’s annual requirement stands at around 36 million (360 lakh) bales. Amid these weak production estimates, cotton prices have surged by nearly 33% compared to the previous year.
Rising Costs Pressure Export Competitiveness
There is growing concern that high cotton prices could undermine the competitiveness of Indian yarn, fabrics, and garments in international markets. This challenge arises at a time when India is actively seeking to expand trade opportunities in new markets, including the UK and the US. The Ministry of Textiles aims to grow the textile sector—from its current valuation of approximately $172 billion to $350 billion by 2030—by driving investments to expand production capacity. However, exports have not seen the anticipated growth over the past few years.
Potential for Improved Margins in Spinning Mills
Previous exemptions on cotton import duties have already benefited spinning mills and textile manufacturers. Market projections suggest that, in the second quarter of the 2027 fiscal year (Q2 FY2027), listed companies may see both revenue growth and an improvement in their EBITDA margins. EBITDA stands for earnings before interest, taxes, depreciation, and amortization.
Companies such as KPR Mills, Vardhman Textiles, Ambika Cotton, and Indo Count have recorded a 200–300 basis point increase in margins on a quarter-on-quarter basis. Increased festive demand and a rise in export orders are expected to lead to better capacity utilization for these mills. However, a domestic shortage of cotton and potential price hikes could limit these gains.
Zero import duty aids raw material availability.
The duty exemption will allow mills to make procurement decisions by comparing the prices of domestic and imported cotton. According to SIMA, cotton accounts for approximately 70% of the cost of yarn production, 50% of fabric production, and 30–35% of the cost of finished garments. Therefore, the availability of high-quality cotton in sufficient quantities at competitive prices is essential.
Uncertainty regarding cotton prices has impacted the momentum of spinning mill stocks. Moving forward, the profitability of these companies will depend on domestic and global demand, the availability of cotton, and the cost of raw materials.
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