Govt eyes cotton duty, electronics in rupee fight

NEW DELHI (Reuters) - The government could impose a 10 percent duty on cotton exports as early as Thursday aiming to boost overseas sales of value-added textiles to take advantage of a weak rupee and reduce the current account deficit, government sources and industry officials said.

The measure is due to be considered at a cabinet meeting on Thursday, where ministers are also expected to discuss a long-delayed plan to build two semiconductor factories with government subsidies to attract some $4 billion in investment.

Both policies, and a proposal to raise India's World Bank borrowing limit by $4.3 billion, could help bring in foreign exchange as India struggles to narrow the world's third largest current account deficit.

India is the second-biggest cotton producer after China and any curb on cotton exports could boost flagging global prices.

The government is trying to reduce a current account deficit which hit a record 4.8 percent of gross domestic product in the year ended March 31.

It hopes to take advantage of what is otherwise a damaging 16 percent fall in the rupee against the dollar since June 1.

India earned about $8.94 billion from cotton exports in 2012/13, equivalent to some 2.92 percent of total goods exports.

The Cotton Association of India (CAI) on Thursday said production should be 37.5 million bales in the year from October 1. Domestic consumption is likely to be 27-28 million bales.

"Any kind of duty on cotton exports would hit overseas demand for Indian cotton and would reduce farmers' returns," said Arun Kumar Dalal, a trader from Ahmedabad, a cotton market in Gujarat.

Measures discussed on Thursday could also include other steps for increasing cotton availability for textiles mills, which have been complaining of higher prices, said government sources directly involved in decision making.

SEMICONDUCTORS

The cabinet will also consider proposals on semiconductor manufacturing, a government official with direct knowledge of the matter said. Another official said the cabinet may give "in-principle" approval to the proposals.

Media reports have named IBM and STMicroelectronics among potential investors, while the companies have not officially confirmed the reports.

Israeli chipmaker TowerJazz has said it has submitted a bid with two partners to build a plant in India.

India's demand for electronics products is forecast to rise nearly 10 times during the current decade to reach $400 billion by 2020.

Policymakers have said the electronics import bill could surpass that of oil due to lack of major local manufacturing.

As sales of smartphones, computers, television sets surge, annual imports of semiconductors is expected to touch $50 billion by 2020 from $7 billion in 2010.

(Reporting by Devidutta Tripathy, Mayank Bhardwaj, Manoj Kumar, Meenakshi Sharma and Harichandan Arakali; editing by Jason Neely)