The Indian textile industry is facing serious issues.
It is reeling from an increase of a third in the price of raw cotton over the last four months, caused by delayed rains and pest attacks on cotton fields. Spinning mills have reduced production by 15 to 20 per cent.
The industry is highly fragmented, subject to volatile swings in prices because of antiquated trading systems, and ill-equipped to fend off growing competition from more efficient rivals such as Vietnam and Bangladesh.
Inaccurate production data gives room to speculators to spread rumors of a shortage of cotton, causing extreme volatility in cotton prices. India’s cotton yields, already among the world's lowest, have fallen due to delayed rains and white fly problems.
The textile industry came under unwelcome international scrutiny after Welspun India, the country’s largest textiles exporter, was accused by a major US retailer of passing off cheap cotton sheets as containing valuable fine Egyptian cotton.
The textile industry’s future is critical to India’s social and economic prospects. It employs 45 million people, including the informal sector -- second only to agriculture -- and was recently the target of an 895 million dollar package of incentives with the aim of catalyzing investments of 12 billion dollars over the next three years.