India Ratings (Ind-Ra) has revised its cotton outlook to stable for the next financial year (2017-18) from negative for the fiscal year 2016-17 following steady input prices, healthy capacity utilization and healthy domestic demand.

Ind-Ra said that the status will stem from fiscal incentives and implementation of the Goods and Services Tax (GST) that will improve the industry’s export competitiveness.

Favourable trade agreements with the U.S. and Europe will also lead to a significant increase in India’s exports and a higher-than-expected domestic demand would be positive for the sector, it added.

Moreover, Ind-Ra believes that with the U.S.’ exit from the Trans-Pacific Partnership, it is likely to realign textile trade and investments, which were diverted to Vietnam over FY16-FY17, towards the Indian subcontinent ) and the likelihood of tax rationalisation under GST.

Further structural advantages in the form of dominance in cotton production, cost and quality competitiveness due to increasing integrated fibre to apparel/ made-ups capabilities, government’s stimulus to exports, declining interest rates and stable currency regime are expected to favour India’s export share.

The stable cotton outlook is in view of an increase in acreage, a rise in supply in the first quarter of FY18 (due to demonetisation) and a decline in global inventory assisting with a balanced supply, Ind-Ra said.

It also expects operating profitability levels of Indian cotton ginners and exporters to moderate in FY18. Ind-Ra believes that in FY18, India’s share in the global textiles and apparel trade could see an increase.