With the Multi Fibre Agreement (MFA) expiring on 1st January 2005, the competition in textile and clothing industry is likely to increase. Among the factors determining the competitiveness of industries would be the unit cost, which depends upon the factor prices on the one hand and the productivity level on the other. The present study examines these two factors for the three main textile industries, cotton yarn, man-made textiles and readymade garments. Decomposition of the unit cost shows that an increase in material price has been the largest contributor to the unit cost growth in the three industries. In cotton yarn sector, technological retrogression and inefficiency add to the unit cost growth.