Import Duty on Raw Cotton
The Indian government is considering the removal of the 11% import duty on all varieties of raw cotton temporarily for four months from July to October.
Rationale for Removal
- Agricultural Impacts: Officials believe that removing the duty during the lean phase of cotton trade will not significantly affect farmers.
- Current Duty Scenario: Duty was reimposed on January 1, 2026, after an exemption period, except for Long Staple Cotton (ELSS) where duty remains at zero.
- Textiles Sector: The sector argues that removing the duty would provide immediate relief and enhance competitiveness in global markets.
Textile Industry Concerns
- Major associations and the Chief Minister of Tamil Nadu have lobbied for the removal of the duty due to:
- Rising domestic prices due to reduced local production.
- Potential job losses and adverse impacts on one of India's largest textile industries.
- The existing duty on raw cotton increases input costs and affects export commitments.
- Shift towards blended fibers due to duty exemptions on synthetic fibers, leading to uneconomic adjustments.
Trade and Economic Implications
- Cotton trade believes duty-free imports could hurt export competitiveness due to:
- The Advance License Scheme (ALS) allows imports at nil duty for exporters.
- Concerns over dollar outflow, with past reductions leading to $1.1-1.2 billion outflows.
- Potential adverse effects on farmers before kharif sowing, with estimated 4 million bales held for better prices.
Market Dynamics
- Global and domestic cotton prices have surged by 10-15% since April due to:
- West Asia crisis and lower-than-expected 2025-26 crop year production estimates.
- Projected production for 2025-26 is approximately 29.09 million bales, down from 29.74 million bales in 2024-25.
