Despite leading the world in acreage, the cotton sown area in India has been steadily declining, with current levels being 20 per cent lower than the peak acreage levels of 2021, according to ICRA.
However, despite a reduction in acreage, cotton yield continues to rise, improving by 1.8 per cent year on year (YoY) in Indian cotton year (CYi) 2026.
The Indian CY runs from October to September, distinct from the global CY, whose duration is from August to July.
Following a 9-per cent YoY contraction in CYi2025, the acreage is seen reducing by around 3 per cent YoY in CYi 2026 due to several factors like water shortage issues in the northern region, uneven monsoons and a shift towards more profitable alternative crops in many regions.
However, cotton output is likely to dip by 1.7 per cent YoY to 29.2 million bales in CYi 2026, according to the first advance estimates released by the department of agriculture and farmers welfare, taking the output to its lowest levels in the last ten years, ICRA said in a note.
Domestic consumption, on the other hand, is expected to remain flat. While domestic demand is stable, the effects of US tariffs on Indian apparel exports on the downstream sectors is likely to affect overall consumption.
Amidst lower cotton output, the dependence on cotton imports has been rising—up by 85 per cent on a YoY basis to 1.5 million bales of 170 kg in the first five months of fiscal 2025-26 (FY26). Imports now meet over 10 per cent of demand.
Owing to weak demand and import duty waiver, cotton prices have been trading marginally below the minimum support price (MSP) since November 2024. MSP on cotton increased by 8 per cent for CYi 2026. Accordingly, the gap has widened further in recent months.
Despite the lower output, the subdued cotton yarn demand (domestic plus exports) is likely to keep the cotton price low in the next few months in India, ICRA noted.
Following a flat trend in the first half (H1) of FY26, domestic cotton fibre prices fell by 3 per cent month on month (MoM) in November 2025. Against this, average cotton yarn prices fell by 4 per cent.
ICRA anticipates a stabilisation of contribution levels at ₹98-100 per kg for FY26 due to moderation in realisation expected in H2 FY26.
ICRA’s sample set of 13 companies, which accounts for 25-30 per cent of the Indian industry’s revenue, is expected to report a 4-6 per cent decline in revenues on a YoY basis in FY26.
Additionally, margins of spinners are expected to contract by 50-100 basis points in FY26, primarily due to weaker performance expected in the second half.
