Trade split on cotton duty cut; risks flagged for farmers, CCI

As industry seeks lower cotton import duty amid rising prices, sections of trade warn it could hurt farmers, trigger distress selling, and lead to losses for the Cotton Corporation of India

Even as millers, the garment industry, and the government discuss cuts to the existing import duty on cotton due to a sudden jump in domestic rates, a section of the trade feels that reducing duty at this juncture could harm farmers' interests just ahead of the kharif sowing season. It could also result in losses for growers that are holding on to their produce, estimated at around 4 million bales, in anticipation of better prices. One bale is equivalent to 170 kilogrammes.

 

“The last time India lowered the import duty on cotton, farmers were forced to sell their produce below MSP rates because a massive (volume of) almost 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 home of better returns,” a senior trader said.

 

The government, however, said on Tuesday is studying the feasibility of the elimination or reduction of the customs duty, stressing that concerned ministries will make a decision in this regard.

 

"We are working with the Department of Revenue to see whether a reduction can happen," Bipin Menon, trade advisor at the ministry of textiles, said at an inter-ministerial briefing on the developments in West Asia. He said that the agriculture, textile, and finance (Department of Revenue) ministries are currently looking at customs duty reduction or elimination on cotton.

 

"There is also a discussion on whether we can do it temporarily for the lean season. The ministries of Agriculture, Textiles and the Department of Revenue will together take a decision on this," Menon said.

 

India currently imposes about 11 per cent import duty on cotton, which took effect on January 1, 2026, after the exemption period ended. However, the import duty on Long Staple Cotton (LSC) remains zero because India is not a major producer of the variant.

 

However, with cotton prices rallying in global markets, including due to the West Asia conflict, domestic rates have surged since the beginning of April by almost 10-15 per cent. The price increase is also been due to expectations of a lower-than-estimated crop in the 2025-26 crop year that ends in September.

 

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

 

These sources also point out that domestic consumption in 2025-26 is projected at 31.2 million bales, up from 30.6 million bales last year, which is contributing to both the price spike and the demand for reducing import duties.

 

A section of traders, however, say that the domestic supply situation is not one of shortage but of surplus as farmers are still sitting on almost 5 million bales of unsold cotton even at this late stage of the 2025-26 marketing season.

 

“Ideally, most of the cotton gets sold in the first three or four months of the marketing season that starts from October, but this year, our estimation is that farmers and others are still holding significant quantities of cotton because prices were not commensurate in the beginning of the season,” an industry official said.

 

He added that the state-run Cotton Corporation of India (CCI) is also holding almost 5-5.5 million bales of cotton that it had procured through the MSP operation.

 

“If imports are relaxed at this juncture, CCI will have to suffer significant losses in liquidating its inventories,” the industry official remarked.

 

If mills want cotton, he added, they can always purchase from CCI which is holding on to substantial stocks of its own. Moreover, substantial quantities of cotton, estimated to be anywhere between 3.8-4 million bales, have already been imported into India between October 2025 and February 2026.

 

“Relaxation in import duties at this juncture will heighten risk of price suppression and distress selling by farmers which could add to their agony as in several cotton growing states, mandi prices ruled below MSP during peak arrival months, reflecting weak bargaining power at the farm gate,” this official said. “Removal of import duty at this stage would likely anchor domestic prices closer to import parity, resulting in further downward pressure on mandi prices.”

 

He pointed out that, over the past six months, Indian cotton prices have already moved upward and the benchmark Shankar 6 – a cotton variant used as the industry standard - spot prices increased by about 14–15 per cent between late 2025 and early April 2026.

 

“This rise indicates that domestic prices are not signalling scarcity, and that the market is already absorbing supply at higher levels without additional import stimulus and the recent rise in Shankar 6 spot prices (Rs/candy) may be interpreted primarily as a pass through of global benchmark and currency movements,” the official explained. One candy is equal to 356 kgs, or just under two bales.

 

He said in the last six months, global Intercontinental Exchange (ICE) Cotton futures increased from 64 cents per pound to 77 cents per pound (approximately 20.3 per cent), while the exchange rate weakened from Rs 90/USD to Rs 94/USD, a decline of approximately 4.4 per cent.

 

“When these two effects are combined, the implied increase in import parity or benchmark-linked pricing is approximately 25.7 per cent, while in comparison, domestic cotton prices have risen by only about 14–15 per cent,” the official suggested.

 

This means that a differential of roughly 10–11 percentage points, implying that competitiveness and procurement economics have improved for downstream participants (including mills), even as the benefit to farmer realisations has remained limited — particularly in view of the earlier duty-free import allowance during peak arrivals, this official explained.

 

However, the official said that yarn margins have improved significantly because yarn prices have increased by 21 per cent since January while cotton prices have increased by only 9 per cent.

 

“On January 1 this year, Indian cotton prices were Rs 54,000 per candy which translates to 76.5 cents per pound. On same day the prices of international cotton on the ICE exchange were 64 cents. So Indian cotton was 12.5 cents higher than world cotton price. Today International cotton price Is 78.5 cents and Indian cotton price is 82.75 cents which means Indian cotton is only 4.25 cents/pound higher. At this level, India is the cheapest cotton in the world today,” the official explained.