India’s decision to withdraw quality control orders on polyester yarn is expected to cut operating margins of domestic yarn makers by up to 130 basis points, while offering cost relief to downstream textile, garment and home-furnishing manufacturers, CareEdge Ratings said in a report.
The government scrapped the Quality Control Orders (QCO) and mandatory Bureau of Indian Standards certification on polyester yarn and related intermediates in November 2025, reversing rules introduced in October 2023 to improve quality and support domestic manufacturing, according to CareEdge Ratings.
During the initial period of QCO implementation, polyester yarn imports fell sharply, declining 48 per cent in the second half of FY24 and 51 per cent in FY25 year-on-year, the report said. Reduced imports, particularly from China, allowed domestic producers to raise yarn prices by up to Rs 5 per kg, temporarily supporting margins for upstream spinners.
However, the protection came at the expense of downstream segments, as higher yarn prices squeezed fabric, readymade garment and home-textile manufacturers and hurt their competitiveness, CareEdge Ratings noted. Even before the formal rollback, imports began rebounding due to enforcement challenges and certification loopholes, with polyester yarn imports rising 84 per cent year-on-year in the first eight months of FY26, led by a 124 per cent surge from China.
With the removal of BIS certification, imports are expected to rise further, intensifying price competition in the domestic market. CareEdge Ratings estimates domestic polyester yarn prices could soften by Rs 3–4 per kg or more from 2025 levels, pushing operating (PBILDT) margins of polyester spinning units down by 100–130 basis points to around 7–7.5 per cent.
“Domestic polyester yarn manufacturers will have to brace for a tougher pricing environment post removal of QCO on various polymers and their intermediates, albeit the broader textile value chain stands to gain,” said Akshay Morbiya, Assistant Director at CareEdge Ratings, in the report.
China is expected to remain the dominant supplier, having accounted for around 80 per cent of India’s polyester yarn imports over recent years, supported by scale advantages, integrated supply chains and surplus capacity. The return of low-cost Asian supplies is likely to erode the pricing power of Indian midstream yarn producers, CareEdge Ratings said.
While yarn makers face margin pressure, downstream textile segments are seen as clear beneficiaries. Lower yarn costs are expected to provide relief to garment and home-textile exporters grappling with high US tariffs, helping restore some cost competitiveness and support margins, the report said.
CareEdge Ratings added that softer crude oil prices could partially offset the margin impact for yarn producers by lowering polymer feedstock costs, as crude is the source of PTA and MEG used in polyester production.
Polyester yarn, an affordable substitute for cotton, plays a key role in India’s textile value chain. According to CareEdge Ratings, cheaper inputs following the QCO rollback could help downstream manufacturers partially counter the impact of recent US tariff hikes on Indian apparel and home-textile exports.
“In a nutshell, while the QCO rollback injects fresh competition into the polyester yarn market, downstream mills and exporters will become more cost-effective and partially counter tariff headwinds, thereby improving their export competitiveness,” the report said. |
