Path being cleared for temporary removal of cotton import duty curbs

Government may temporarily scrap cotton import duty from July to October as textile mills seek relief amid soaring prices and supply concerns

The decks seem to be finally getting cleared for the removal of 11 per cent import duty on all varieties of raw cotton. According to sources, all stakeholder ministries are gradually veering towards the idea of a temporary removal of duties for four months from July to October. 

Some officials said the thinking within a section of the government, including agriculture, is that removal of import duty for a limited period — that too when there is a lean phase in cotton trade — won’t have a big impact on farmers and their interest would remain protected. 

India currently imposes around 11 per cent duty on cotton that kicked in from January 1, 2026, after the exemption period ended. 

However, the import duty on Long Staple Cotton or ELSS cotton still remains at zero as India is not a major producer of the cotton. 

The textiles sector has been batting for removal of import duty on grounds that it would provide immediate relief to the sector while at the same time ensure India’s competitiveness in the world markets. 

All major textile industry associations had approached the central government with a request to abolish the import duty for now. This is in view of surge in domestic cotton prices due to lower domestic production and also current West Asia crisis. 

Even newly-elected Chief Minister of Tamil Nadu C Joseph Vijay has approached Prime Minister Narendra Modi to scrap the import duty to prevent job losses and protect the domestic textile industry. 

Tamil Nadu has one of the largest textiles industries in the country. 

Meanwhile, the textiles sector felt the existing duty structure on raw cotton will increase their input costs, adversely impacting the competitiveness of the domestic textiles industry and impact export commitments. 

There is also question of a shift towards blended fibres as raw materials for synthetic fibres enjoys duty exemptions while raw cotton remained subject to duty that would lead to uneconomic shift towards the blended industry. 

However, a section of the cotton trade contended that the key reason that has been highlighted in various forums is that export competitiveness of Indian textile will get hampered. 

This is due to higher duty as people who want to export can import at nil duty under the Advance License Scheme (ALS). 

They also argued that if duty free cotton imports are allowed at this juncture it could lead to dollar outflow. The last time India lowered the import duty on cotton, the total outflow was around $1.1-1.2 billion and the amount of duty foregone was also substantial. 

The same section believes that a cut in duty at this juncture could be detrimental to the interest of farmers just ahead of the kharif sowing season and also a loss for those growers who are holding on to their produce, estimated to be around 4 million bales in anticipation of better prices. One bale is equal to 170 kgs. 

“The last time, India lowered import duty on cotton, farmers were forced to sell their produce at below minimum support price (MSP) rates as a massive 3 million bales of cotton got imported in just three months as domestic demand was met through imports. A similar situation might happen again particularly for those growers who are holding on to their produce in the hope of better returns,” a senior trader said. 

However, with cotton prices rallying in global markets due to a variety of reasons, including the West Asia war, rates in the domestic markets have also surged since the start of April by almost 10-15 per cent. 

The price increase has also been due to expectations of a lower than estimated crop in 2025-26 crop year that would end in September. 

Sources said the domestic cotton industry now estimates, 2025-26 production to be closer to 29.09 million bales, marginally down from 29.74 million bales in 2024-25.