Export of cotton-based readymade goods, among the highest foreign exchange earners among textile products, dropped by two percent in 2015-16, from $37.1 billion in 2014-15 to $36.2 billion; while cotton fabrics declined a little more than four percent. This was part of the larger trend of a fall in merchandise export, down for a 17th continuous month in April.

Apparel Export Promotion Council head Ashok G Rajani said that the high price of domestic cotton, coupled with heavy duties on import of cheaper Chinese varieties, have hampered production of cotton goods.

While competing nations Bangladesh and China have been blamed for aggressively edging out Indian exporters from the traditional markets like Europe, industry insiders also blame less availability of cotton.

Apart from cotton, manmade yarn also registered a major decline in export, of 11 percent. Manufacturers have been slowly making the transition to manmade fabrics and yarns but such a trend will dissuade them, said Shaheed Khan, managing director, RK Fabrics.

Though textile exports provided 13 percent of all exports in terms of revenue earned, sectoral experts had predicted a fall in FY16 year. This was due to the rate of growth being a marginal 0.5 percent in 2014-15, down from a significant rise of 12.4percent the year before.

The government is worried, given the sector's potential for labour absorption and revenue earning. They are discussing with the commerce ministry about extending of duty benefits to a number of textile products, said a senior official in the textile ministry.

The government had last year started a Merchandise Exports from India Scheme. This allows duty credit scrips to be transferred or used for payment of a number of duties, including the basic customs duty.

According to domestic manufacturers, high export demand pushed up prices. Also, high dependence on export to China and the sensitivity of India's shipments to China's policy on a reserve cotton stock were a factor for the fall in cotton-based export.

As per estimates from the Cotton Association of India (CAI), the country is likely to produce 34.1 million bales (a bale is 170 kg) in the 2015-16 season, which ends on September 30. This is down from last year's 38.3 mn bales. Successive droughts have reduced the supply from India, traditionally world leader in cotton production.