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India Suspends Cotton Import Taxes; Win for US Fiber?

India will be temporarily waiving duties on cotton imports in response to skyrocketing raw material prices due to demand far outstripping supply.

The finance ministry announced Wednesday that it will also be removing from imports the Agriculture Infrastructure and Development Cess, a special-purpose tax that was created last year to finance the development of agriculture infrastructure.

The move could offer relief to the South Asian nation’s textile mills, which were struggling with the commodity’s total 11 percent import tax. India is the world’s largest cotton producer, accounting for roughly 22 percent of the fiber sold globally. Its cotton fields, however, have been pummeled by unseasonal rainfall, causing domestic production to fall 4 percent from 36-37 million bales in 2020-2021 to 34 million bales in 2021-2022, textile secretary U.P. Singh told reporters. Local demand, however, is expected to exceed 36 million bales this year.

The tax suspension, though effective until only Sept. 30, should allow mills to bring in more cotton from Australia, the United States and West Africa, Singh said. It will also force traders and ginners that have been hoarding supplies to release their stocks, cooling domestic cotton prices by reducing speculative trade.

Cotton prices topped 90,000 Indian rupees ($1,179) per candy—approximately 2.09 bales or 356 kilograms—at the time of the announcement. Industry insiders told the Business Standard that they expected cotton prices to ease by 5,000-6,000 Indian rupees ($65.50-$78.61) per candy following the news.

The duty-free stipulation should soften the prices of yarn and fabrics as well, according to A. Sakthivel, president of the Federation of Indian Export Organisations.

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“Cotton textile exports will get further boost as the high prices of cotton were blunting the competitive edge,” he said in a statement, adding that India has boosted its market share in apparel exports in the United States and others and that recent Comprehensive Economic Partnership Agreements with Australia and the United Arab Emirates should “accelerate” this trend. The sector aims to hit $100 billion in textile exports by 2030, Sakthivel said.

Shri T. Rajkumar, chairman of the Confederation of Indian Textile Industry, welcomed the measure, saying that it will help India’s textile value chain to grapple with higher cotton prices while continuing to “manufacture high-end products for their niche markets in advanced countries.”

He noted in a statement that he doesn’t anticipate duty-free cotton imports to exceed 4 million bales during the current season. And since it will take three to four months for the imported cotton to reach India’s mills—and local farmers have already sold their current cotton crop and are sowing for the next season—the waiver shouldn’t dent domestic production.

But farmer organizations such as the All India Kisan Sabha (AIKS), which is affiliated with the Communist Party of India, blasted the decision, saying it will “spell disaster for cotton farmers who are unable to realize remunerative prices.”

“There is no protection guaranteed to the cotton farmer in the form of assured procurement at remunerative prices—at least one and a half times the cost of production,” AIKS said in a statement. “Inflow of raw cotton will lead to a further crash in prices in the absence of effective price stabilization.”

Meanwhile, Mukesh Tyagi, senior vice-president of the Northern India Textile Mills Association, urged the government to enact a more permanent exemption.

“Cotton [is] India’s door opener for global textile trade and as such, a comprehensive cotton fiber policy should be in place,” he told the Times of India. “In order to avoid the re-occurrence of these crises every year, the import duty on cotton [should] be removed permanently with the arrival of shipments only from April to September each year. We request the ministry of textiles and the ministry of finance to consider these suggestion[s].”