Patspin India Ltd Management Discussions

Economic Review

Global Economy and Outlook:

The year 2024 was primarily focused on the major elections in India and the United States and the potentially ensuing policy directions globally. Globally, 2024 witnessed an uneven recovery. Service sectors remained relatively strong, while manufacturing lagged, particularly in Europe and parts of Asia, due to supply chain disruptions and softer external demand. Geopolitical tensions, including the Russia-Ukraine war and Middle East conflicts, heightened uncertainty across financial and commodity markets.

The IMF projects global GDP growth at 2.8% in CY 2025 and 3% in CY 2026, supported by easing in on and sustained demand in emerging market.

The IMF notes heightened financial market volatility due to expected policy changes under newly elected governments. Structural challenges, including trade frictions, accelerated digital and environmental transition along with other factors, continue to complicate the global growth landscape. Fiscal tightening is also anticipated across both advanced and emerging economies in 2025-26. Global risks remain elevated.

Indian Economy:

Indias economy continued to demonstrate resilience, amid global uncertainties. This growth was driven by supportive policies of the Government of India, stable domestic demand, continued infrastructure investments and an uptick in both urban and rural consumption. Stable macroeconomic policies, good monsoon and robust credit demand contributed to broad-based growth across sectors. . Reserve Bank of India (RBI) has lowered the Repo rate (thrice aggregating to 100 bps during February - June 2025 period), to 5.50%, aiming to support investment and borrowing amid tighter global financial conditions. Inflation has moderated significantly,

Industrial activity regained momentum towards the end of FY 2024-25 after a sluggish first half. Growth strengthened in infrastructure-related sectors, domestic manufacturing and energy-intensive industries. Real GDP growth is projected at 6.5% for 2025-26, maintaining momentum from the previous year despite a slight downward revision due to global risks.

Indian Textile Industry scenario:

The textile and apparel (T&A) market in India has been on an upward trajectory, growing from USD 106 Billion in FY 2019-20 to USD 147 Billion in FY 2024-25, at a CAGR of 7%. With a contribution of approximately 2.3% to the national GDP in FY 2024-25 and accounting for 3.91% of global textile and apparel trade, India remains one of the worlds largest textile markets. Textile and apparel exports surged by 6%, reaching USD 36.6 billion in FY 2024-25, despite soft festive demand and competitive imports from Bangladesh. During the same period, exports of cotton-based products (yarn, fabrics, made-ups and handloom) grew by 3.19% to USD 12.056 Billion. Gujarat, Maharashtra, Tamil Nadu, Punjab, Uttar Pradesh and West Bengal continue to dominate Indias textile production. However, fluctuating cotton prices averaging INR 7,800 per quintal in FY 2024-25 (supported by lower production and an INR 589 MSP increase in May 2025 that set prices at INR 7,710-8,110 per quintal) added cost pressures, especially for spinners and weavers. Nevertheless, Indias abundant raw-material base with a cotton output of 301.75 lakh bales in FY 2024-25 provided a firm foundation for competitive manufacturing and also with policy interventions focused on boosting domestic production and exports, aiming for a substantial global market share increase.

The countrys large cotton output, competitive labour costs and robust manufacturing infrastructure have made it an attractive alternative to China.

Indian textiles industry outlook:

The Indian textile industry is inherently cyclical in nature. Any adverse changes in global economic outlook and demand- supply scenario in the domestic market directly impacts its demand . Textile industry as a whole, remains vulnerable to factors such as input price fluctuations, mobilisation of adequate workforce and changes in government policies for overall development of the textile industry.

The profitability of spinning mills depends largely on the cotton and cotton yarn prices which are governed by factors such as area under cultivation, monsoon, and international demand-supply situation, among others. Cotton being the major raw material of spinning mills, movement in cotton prices without parallel movement in yarn prices impact the profitability of the spinning mills. Volatile cotton prices often translate into risk of inventory losses for the industry players, though at times, it also leads to inventory gains.

Economic Review

Global Economy and Outlook:

The year 2024 was primarily focused on the major elections in India and the United States and the potentially ensuing policy directions globally. Globally, 2024 witnessed an uneven recovery. Service sectors remained relatively strong, while manufacturing lagged, particularly in Europe and parts of Asia, due to supply chain disruptions and softer external demand. Geopolitical tensions, including the Russia-Ukraine war and Middle East conflicts, heightened uncertainty across financial and commodity markets.

The IMF projects global GDP growth at 2.8% in CY 2025 and 3% in CY 2026, supported by easing in on and sustained demand in emerging market.

The IMF notes heightened financial market volatility due to expected policy changes under newly elected governments. Structural challenges, including trade frictions, accelerated digital and environmental transition along with other factors, continue to complicate the global growth landscape. Fiscal tightening is also anticipated across both advanced and emerging economies in 2025-26. Global risks remain elevated.

Indian Economy:

Indias economy continued to demonstrate resilience, amid global uncertainties. This growth was driven by supportive policies of the Government of India, stable domestic demand, continued infrastructure investments and an uptick in both urban and rural consumption. Stable macroeconomic policies, good monsoon and robust credit demand contributed to broad-based growth across sectors. . Reserve Bank of India (RBI) has lowered the Repo rate (thrice aggregating to 100 bps during February - June 2025 period), to 5.50%, aiming to support investment and borrowing amid tighter global financial conditions. Inflation has moderated significantly,

Industrial activity regained momentum towards the end of FY 2024-25 after a sluggish first half. Growth strengthened in infrastructure-related sectors, domestic manufacturing and energy-intensive industries. Real GDP growth is projected at 6.5% for 2025-26, maintaining momentum from the previous year despite a slight downward revision due to global risks.

Indian Textile Industry scenario:

The textile and apparel (T&A) market in India has been on an upward trajectory, growing from USD 106 Billion in FY 2019-20 to USD 147 Billion in FY 2024-25, at a CAGR of 7%. With a contribution of approximately 2.3% to the national GDP in FY 2024-25 and accounting for 3.91% of global textile and apparel trade, India remains one of the worlds largest textile markets. Textile and apparel exports surged by 6%, reaching USD 36.6 billion in FY 2024-25, despite soft festive demand and competitive imports from Bangladesh. During the same period, exports of cotton-based products (yarn, fabrics, made-ups and handloom) grew by 3.19% to USD 12.056 Billion. Gujarat, Maharashtra, Tamil Nadu, Punjab, Uttar Pradesh and West Bengal continue to dominate Indias textile production. However, fluctuating cotton prices averaging INR 7,800 per quintal in FY 2024-25 (supported by lower production and an INR 589 MSP increase in May 2025 that set prices at INR 7,710-8,110 per quintal) added cost pressures, especially for spinners and weavers. Nevertheless, Indias abundant raw-material base with a cotton output of 301.75 lakh bales in FY 2024-25 provided a firm foundation for competitive manufacturing and also with policy interventions focused on boosting domestic production and exports, aiming for a substantial global market share increase.

The countrys large cotton output, competitive labour costs and robust manufacturing infrastructure have made it an attractive alternative to China.

Indian textiles industry outlook:

The Indian textile industry is inherently cyclical in nature. Any adverse changes in global economic outlook and demand- supply scenario in the domestic market directly impacts its demand . Textile industry as a whole, remains vulnerable to factors such as input price fluctuations, mobilisation of adequate workforce and changes in government policies for overall development of the textile industry.

The profitability of spinning mills depends largely on the cotton and cotton yarn prices which are governed by factors such as area under cultivation, monsoon, and international demand-supply situation, among others. Cotton being the major raw material of spinning mills, movement in cotton prices without parallel movement in yarn prices impact the profitability of the spinning mills. Volatile cotton prices often translate into risk of inventory losses for the industry players, though at times, it also leads to inventory gains.

The economic outlook for India remains positive, driven by rising consumer demand, improved investment activity and supportive policy measures. The combination of declining inflation and lower interest rates is expected to further boost credit growth and investment activity. Domestically, Indias rural demand recovery and strong public capital expenditure are supporting growth. Investment sentiments have improved, with manufacturing capacity utilisation remaining above historical averages.

Meanwhile, global cotton prices decreased by nearly 9%, from 95 cents per pound in 2023 to 86.6 cents in 2024, benefiting textile manufacturers with reduced input costs and supporting downstream production. In India after recording a peak of around 1 lakh per candy in FY23, domestic cotton prices corrected with the arrival of the new crop, and they are currently hovering between around 58,000 per candy.

The Union Budget 2025-26 introduced several forward-looking reforms designed to enhance competitiveness and productivity to meet the Ministry of Textiles target of reaching USD 100 Billion exports by FY 2030-31.Towards this target Government has announced various measures in the recent Union Budget of FY 2025-26 to give impetus.

Key highlights of Union Budget of 2025-26 announcements for textile sector:

• Budget announces INR5272 crores allocation for the Ministry of Textiles for the FY 2025-26

• Textile MSMEs will get better credit access and infrastructure support to strengthen domestic and export markets. Budget thrust on export, enhanced credit and coverage will uplift textile MSMEs.

• Focus on innovation-driven textiles such as medical, industrial, and sustainable fabrics, boost Make in India in technical textile sector viz. agro textiles, medical textiles, and geo-textiles.

• Increased allocation for the Production-Linked Incentive (PLI) scheme to boost textile manufacturing and exports.

• Reduced Import Duties on Raw Materials. This will help textile manufacturers lower production costs and improve global competitiveness.

• Five-Year Cotton Mission. Aimed at addressing stagnant cotton productivity, especially for extra-long staple varieties. Inclusion of enhancing Extra Long Staple (ELS) Cotton Productivity in the five-year Cotton mission in the Union Budget will foster production of superior quality raw material for the textile industry, strengthen Indias traditional textile sector, boost exports and reduce dependency on imports.

• Government has finalized setting up of PM Mega Integrated Textile Region and Apparel (PM-MITRA) Parks at 7 sites viz. Tamil Nadu (Virudhnagar), Telangana (Warangal), Gujarat (Navasari), Karnataka (Kalaburagi), Madhya Pradesh (Dhar), Uttar Pradesh (Lucknow) and Maharashtra (Amravati) with an outlay of 4,445 cr for a period of seven years up to 202728

• The Budget aims to accelerate economic growth through Agriculture, it will facilitate significant improvements in productivity and sustainability of cotton farming, increase the income of farmers and ensure a steady supply of quality cotton for Indias textile sector.

• 2 types of shuttle-less looms to the list of fully exempted textile machinery.

• Creation of National Manufacturing Mission, Export Promotion Mission, creating the Bharat Trade Net,, Measures for Labour-Intensive Sectors to promote employment and entrepreneurship opportunities, revision in classification criteria for MSMEs and others will create conducive environment for the textile sector.

• TDS/TCS Rationalization Measures in Budget 2025

• GST Amendments for trade facilitation

Furthermore, the recent India-UK FTA (signed May 2025) eliminates tariffs on 99% of Indian textile exports. This is expected to boost bilateral trade by an estimated USD 34 Billion annually by 2040 and substantially enhance Indias access to Europes second-largest apparel market. Concurrent negotiations on an India-EU FTA and likely to conclude by late 2025, could further enhance competitiveness by lowering duties in key markets.

Additional duties, coupled with procurement regulations ban on usage of cotton from Xingjian region have significantly crippled US (Ready Made Garment) RMG imports from China over the past 8 years. US based brands shifted to Bangladesh/ India for cotton-based offerings and towards Vietnam for non-cotton offerings. With the latest reciprocal tariffs of 20% above the prevailing Section 301 tariffs ranging from 7-25% on Chinese RMG imports, move away from China would be