Why in news?

Cotton, the key raw material for India’s textile industry and grown by nearly six million farmers, has seen a decline in domestic production.

To address this, the Centre has withdrawn the 11% import duty—first imposed in February 2021—until September 30, when the current cotton season ends. The move follows a steep rise in cotton imports last year, despite the duty being in place.

What’s in Today’s Article?

• Introduction and Withdrawal of Cotton Import Duty
• Implications of Cotton Import Duty Withdrawal
• Current Status of Cotton Production and Imports in India
• Long-Term Solutions for Cotton Sector

Introduction and Withdrawal of Cotton Import Duty

• The import duty was announced in the 2021 Budget, when the country was producing 350 lakh bales of cotton annually against the requirement of 335 lakh bales.
  • While the country was exporting cotton, there were imports too and the duty was aimed at protecting the interest of cotton growers.
• However, as the textile industry later faced a raw material shortage, the government exempted all varieties of cotton from the duty between April–September 2022, later extending it to October 2022.
  • According to the Global Trade Research Initiative, cotton imports surged 107.4%, rising from $579.2 million in FY2023-2024 to $1.20 billion in FY2024-2025.

Implications of Cotton Import Duty Withdrawal

• With this, the government has scrapped both the 5% basic customs duty and the 5% agriculture cess on cotton, enabling mills to source raw material at lower costs.
• This move is expected to cool domestic cotton prices, benefitting everything from T-shirts to handloom sarees, and provide relief to SMEs in the textile sector.
• The decision comes as Indian apparel exporters face steep global competition, burdened by nearly 60% tariffs in the US (compared to Bangladesh and Vietnam at 20%).
• Rising cotton prices at home had further strained the industry, making the exemption a step taken in the “public interest”.
• Implications
  • The withdrawal of cotton import duty will mainly benefit garment exporters, as around two lakh bales in transit will now enter duty-free.
  • This will give them a level-playing field internationally where high raw material costs earlier hampered competitiveness.
    • Several global brands also expect Indian suppliers to use this imported cotton.
  • However, farmers have voiced concerns, arguing that the move discourages cotton cultivation.
  • Without adequate government support, they feel the decision undermines their interests, even as exporters and manufacturers stand to gain.

Current Status of Cotton Production and Imports in India

• India’s domestic cotton production has fallen to 294 lakh bales in 2024-25, the lowest in 15 years, against a requirement of 318 lakh bales (including non-mill use).
• Output this season is projected to be 20 lakh bales lower than last year.
• To bridge the gap, imports may touch 40 lakh bales, mainly from Australia ($258.2 million), the U.S. ($234.1 million), Brazil ($180.8 million), and Egypt ($116.3 million).
• Meanwhile, the Cotton Corporation of India (CCI) procured around 100 lakh bales at MSP, spending ₹37,500 crore, and has already sold 73 lakh bales in the market.
• For the 2025-26 season starting October 1, the government has announced an 8% hike in MSP, with fresh supplies expected from northern States in October and central and western States after Deepavali.

Long-Term Solutions for Cotton Sector

• The textile industry seeks policy stability in cotton procurement.
• It suggests the government suspend import duty during the non-peak season (April–September), after farmers sell most of their produce, ensuring mills access affordable raw material without affecting growers.
• Additionally, the industry has asked for a 5% interest subvention on working capital to help mills, especially MSMEs, purchase cotton during the peak season.
• With sufficient funds, mills could cover their cotton needs, reducing dependence on costly MSP operations by the government.