India’s textile exports fell five per cent in 2016 compared to 2015. Demand remained sluggish and India has been losing out to China. That country’s cost of production remained almost flat and there has been currency depreciation. The Chinese currency has weakened nine per cent over the dollar. In contrast, the cost of production has increased sharply in India and the rupee has appreciated around five per cent. So India's receivable export proceeds have declined proportionately.

The past year has seen a 25 to 30 per cent jump in labor cost. Since labor is a major component of the overall cost, the cost of apparel production has risen proportionately. Overall, therefore, India's textile and apparel exports are estimated to remain flat in calendar 2017 as the benefits offered to the industry are negated by a sharp increase in the cost of production and appreciation in the rupee.

Demand for fabric from apparel makers has been subdued. The country's fabric production was tepid in April-September 2016, with a modest growth of two per cent. Demonetisation added to the challenges being faced by this fragmented and unorganised segment, seen in a six per cent fall in fabric production during the December quarter.