The combined effects of rising demand and production cuts at India's cotton spinning mills are putting the sector on track for a recovery in the second half of the year, an industry body says.

Spinning mills cut their production by around a third in May in a bid to reduce stocks of more than 500m kg of cotton yarn that built up after the government introduced a cap on exports. But there has since been a "significant easing" of the stock position, according to the Confederation of Indian Textile Industry (CITI).

Its chairman Shishir Jaipuria says current cotton yarn exports "are comparable with those of the same period last year," and that mills' cotton yarn stocks have now come down to around 350m kg.

He added that there has also been "some positive movement in domestic demand for cotton yarn" and this trend is likely to continue, especially with the start of India's festival season in September.

That said, the group is still calling for a relief package. While the government yesterday (26 July) announced plans to retrospectively restore tax incentives for raw cotton and cotton yarn exports, CITI is seeking a two-year moratorium for repayment of loans and interest to help mills repay loans and find working capital in the coming months following the losses they suffered in the first half of the fiscal year.

Jaipuria believes the improvement in demand will enable the spinning industry to emerge from its present problems during the second half.