Cotton price relief from duty cut may prove short-lived, traders warn

While cotton and yarn prices have eased after the import duty cut, traders caution that global price risks, El Nino concerns and the October import window could limit the benefits

Late last month, the Centre slashed the import duty of 11 per cent on cotton for five months effective June 1, 2026. Since then, cotton prices in domestic markets have dropped by almost 5 per cent for the benchmark Shankar 6 variety from around Rs 64,500 per candy (1 candy is 356 kgs) to around Rs 61,500 per candy.

 

Yarn prices of the benchmark 30 count variety have also fallen from Rs 325 per kg to Rs 310 per kg for the same reason.

 

However, some traders and market players say the relief most textile players are seeing from the duty reduction might be short-lived as global markets are projected to firm up due to various reasons that could effectively negate any gains.

 

“As soon as India starts importing heavily, global prices in the ICE exchange will start inching upwards. Also, worldwide there is much uncertainty over the cotton crop due to El Nino and its impact on dry weather in the US, a major producer. Domestic prices must also move up to make imports profitable or else I don’t see a major downward impact on prices,” cautioned Gnanasekar Thiagarajan of Commtrendz Research and Fund Management Ltd.

 

He said domestic prices are unlikely to continue on a downward path as there is significant uncertainty in India regarding the size of the 2026-27 domestic cotton crop if the El Nino effect is particularly harsh.

 

Meanwhile, some traders argue that the very design of the import window warrants reconsideration.

 

A more calibrated approach, they say, would restrict the duty-free period to June-September but exclude October, when India's new cotton crop begins arriving in significant quantities.

 

Extending the exemption into October risks putting downward pressure on domestic prices at a critical stage of the marketing season.

 

Unlike the lean summer months, October marks the beginning of the domestic cotton harvest cycle. Fresh arrivals start entering mandis across major producing states and market price discovery gathers momentum. Data from past seasons illustrate the importance of this period.

 

According to industry estimates, cotton arrivals in October 2023 stood at 2.44 million bales, while cumulative arrivals crossed 5.7 million bales by the end of November. In the 2024-25 season, arrivals during October and November reached 6.92 million bales, followed by another 6.46 million bales in December.

 

In other words, nearly 13.4 million bales entered the market during the first three months of the season starting October.

 

The figures underline a simple reality: October is not an off-season month. It is the beginning of the harvest period when farmers start marketing their produce and prices are established for the new crop.

 

“Allowing duty-free imports during this phase could distort domestic price discovery. Cotton prices during harvest are influenced by early demand, mill procurement and trader sentiment. Cheaper imported cotton available simultaneously creates an alternative benchmark, potentially weakening demand for domestic produce. The result could be softer local prices and reduced bargaining power for farmers,” a cotton trader said, declining to be named.

 

This section of the trade says the issue is not whether imports should be permitted, since India has periodically relied on imports to bridge supply gaps and ensure adequate availability for the textile sector.

 

Their concern is more about whether imported cotton should directly compete with fresh domestic arrivals during the opening phase of the harvest season.

 

The section also believes there is a behavioural dimension to the policy.

 

If textile mills know that duty-free imports will remain available through October, they may defer purchases from domestic markets as they compare imported and domestic prices.

 

Such a postponement can weaken demand precisely when new crop arrivals begin building up. Harvest markets are often driven as much by expectations as by actual supply-demand conditions, making timing a crucial factor.

 

Recent import trends also suggest that extended duty-free periods can materially alter trade flows. Data from the ministry of commerce shows cotton imports rising sharply following earlier tariff suspensions.

 

Units importing cotton August-December increased from 420 in 2023 to 1,948 in 2024, and further to 4,148 in 2025.

 

For October, the number of such units rose from 66 in 2023 to 364 in 2024, and 746 in 2025, indicating that market participants actively utilise duty-free windows to secure supplies.