This paper uses a modified policy analysis matrix (PAM) approach to assess the efficiency of cotton production in five major producing states in India. The results indicate that cotton is not efficiently produced in the second-largest cotton-producing state in the country. Without government interventions in this state, it is likely that acreage will move away from cotton to more profitable crops such as sugarcane and groundnut. In addition, we conclude that cotton is not the most efficiently produced crop in the other four states; however, there is at least one crop in each state that is less efficiently produced than cotton. These findings suggest that Indian policies directed at maintaining the availability of cheap cotton for the handloom and textile sectors have induced major inefficiencies in the cotton sector.