The Indian government has removed a 5% basic customs duty on cotton imports to shore up domestic supplies of the fibre, an acute shortage of which has badly hit the country’s textiles-and-clothing value chain.
Prior to the move, cotton imports in India were effectively taxed at 11% (including agriculture infrastructure development cess and surcharges). With the latest notification by the revenue department, the cess and the surcharges will also cease to exist, which will allow the import of cotton at zero duty.
Prices of the commonly used cotton variety have more than doubled to breach the Rs 90,000-mark per candy of 356 kg since February 2021. Local cotton prices have also exceeded global rates by as much as Rs 1,500-2,000 per quintal.
India’s textile and garment industry has reported order cancellation by western buyers, and orders being diverted to Bangladesh, Vietnam, China and Pakistan in recent months after the steady spurt in cotton prices forced domestic players to try and renegotiate deals.
India’s competitors Vietnam and Bangladesh allow their industries to buy the fibre from abroad at zero duty. This had offered them substantial advantage in raw material costs, in addition to their duty-free access to critical markets like the US and the EU, a privilege that New Delhi doesn’t enjoy.
Meanwhile, Tamil Nadu in southern India is trying to draw the attention of the central government to the plight of the spinning industry in the state, which is reporting heavy production cuts due to the exorbitant costs of manufacturing.