The European Union's Ecodesign for Sustainable Products Regulation (ESPR) is forcing apparel companies to rethink raw material sourcing, reducing dependence on conventional cotton and petroleum-based polyester. Among the biggest beneficiaries is Lyocell, a premium man-made cellulosic fibre (MMCF) manufactured from sustainably sourced wood pulp using a closed-loop solvent process. Besides offering superior softness, strength and drape, Lyocell requires substantially less water than conventional cotton while remaining biodegradable, making it attractive to brands facing stringent environmental compliance requirements. With only a handful of manufacturers worldwide possessing the technological expertise and chemical processing capability needed for commercial-scale production, Lyocell has emerged as one of the most strategic fibres in the global textile industry.

China builds scale, India expands capacity

India entered the Lyocell market early through Grasim Industries, which has spent more than a decade developing expertise in advanced cellulosic fibre manufacturing. But China has rapidly transformed the competitive landscape. Chinese producer Sateri has grown from virtually no Lyocell production six years ago to becoming one of the world's largest manufacturers. Its latest facility in Shandong alone is expected to surpass the global Lyocell output recorded in 2023, underscoring China's ambition to replace conventional cotton across its domestic textile industry.

India's response is centred on capacity expansion rather than retreat. Grasim Industries has approved a Rs 3,094 crore investment to expand its Harihar manufacturing complex in Karnataka, positioning India to emerge as a major global export hub by the end of the decade.

Table: Grasim's Lyocell expansion plan

Once completed, the expansion will increase Grasim's overall MMCF production beyond one million tonnes annually while increasing specialty fibres, including Lyocell, Modal and recycled variants to almost 35 per cent of corporate revenues by 2030.

Trade deals create a competitive edge

Manufacturing capacity alone will not determine leadership. Trade policy is becoming equally important. India's recently concluded Free Trade Agreements with the European Union and the UK are expected to reshape sourcing decisions by eliminating import duties of roughly 8 to 12 per cent on Indian textile and apparel exports into these major consumer markets.

The tariff advantage significantly alters procurement economics for global fashion retailers operating under tight margins. While Chinese manufacturers continue to benefit from scale, Indian suppliers could become more cost competitive simply because their products enter key Western markets duty-free.

Table: Tariff advantage

The combination of competitive manufacturing costs and preferential market access creates an attractive proposition for brands seeking diversified sourcing beyond China.

Foreign investors following the trade map

India's trade advantages are already influencing international investment decisions. Sateri's parent company has signed a MoU with the Tamil Nadu government to establish a 150,000-tonne greenfield Lyocell manufacturing facility in Tuticorin. The strategy reflects an emerging global manufacturing model. Instead of exporting from China, MNC’s are establishing production inside India, allowing finished products to qualify under Indian rules of origin and access European markets under favourable trade agreements. In effect, India's trade pattern is becoming a magnet for international capital seeking both manufacturing efficiency and tariff advantages.

Processing capacity the next challenge

While upstream investments are increasing, India's downstream textile ecosystem remains a critical weakness. Most existing textile clusters were built around conventional fibre systems rather than advanced sustainable materials.

Table: India's processing challenge

Lyocell demands specialised spinning, weaving, dyeing and finishing technologies that differ substantially from conventional cotton or polyester production. Unless textile clusters modernise their machinery and processing capabilities, India risks exporting high-value fibre while importing finished Lyocell fabrics or allowing foreign processors to capture much of the value chain. The next phase of India's textile transformation therefore depends not only on fibre production but also on upgrading downstream manufacturing infrastructure.

A strategic window for India

The meeting of sustainability regulations, expanding production capacity and favourable trade agreements presents India with a rare strategic opportunity. Global fashion companies are seeking reliable suppliers capable of delivering environmentally compliant materials at competitive prices. Lyocell fits squarely within this demand, positioning India to move beyond traditional cotton exports into higher-value specialty fibres.

Grasim Industries' expansion reflects confidence that premium cellulosic fibres will command a growing share of future apparel manufacturing. At the same time, foreign investors are validating India's role as a preferred manufacturing base by committing fresh capital to domestic production facilities. However, sustaining this momentum will require significant investments across the broader textile value chain. Fibre manufacturing alone will not secure long-term leadership unless spinning, weaving, dyeing and finishing capabilities evolve alongside it.

If India succeeds in integrating these downstream capabilities while utilizing its growing network of trade agreements, Lyocell could become far more than a sustainable alternative fibre. It could emerge as the foundation of India's next major textile export story, strengthening its position in an increasingly sustainability-driven global apparel industry.