Context: Indian government has extended the duty-free cotton import policy until December 31, 2025, to alleviate the impact of the 50% US tariffs on textile exports.
Relevance of the Topic: Prelims: Key trends related to Cotton Production & textile industry in India.
Cotton Production in India: Key Trends
- Cotton is the main raw material for the textile industry and is grown by nearly six million farmers in India.
- The import duty on cotton (11% import duty) was announced in the 2021 Budget when India had surplus cotton production (350 lakh bales of cotton annually against the requirement of 335 lakh bales). It was aimed at protecting the interest of cotton growers.
- At present, domestic cotton production in India has declined.
- Overall domestic cotton production is down to 294 lakh bales (the lowest in the last 15 years) against the requirement of 318 lakh bales (including non-mill use).
- In FY 2025, India’s cotton imports surged 107% from FY 2024 (rising from $579 million to $1.2 billion).
- In the present cotton season 2024-25, imports are likely to be highest at about 40 lakh bales with major supplies coming from Australia, the US, Brazil, and Egypt.
Cotton textile exports accounted for approximately 33% of India’s total textile and apparel exports in 2024-25, making it the second-largest contributor after readymade garments.
Import Duty Exemption on Cotton:
- The Indian government has extended the duty-free cotton import policy until December 31, 2025, to alleviate the impact of the 50% US tariffs on textile exports.
- Rationale: To lower input costs across the textile value chain and enhance the competitiveness of Indian textiles in the global market.
Benefits of Import Duty Exemption on Cotton:
- Addresses raw material (cotton) shortage faced by the textile industry. Cotton production in the 2024-2025 cotton season (October to September) is estimated to be nearly 20 lakh bales less than the last cotton season.
- Reduces input cost across the textile value chain, including yarn, fabric, garments etc. and gives much needed relief to the textile industry (impacted by the 50% tariffs by the US).
- Enhances export competitiveness of Indian textiles by lowering production costs and safeguarding small and medium enterprises (SMEs) in the sector.
To safeguard the interest of the domestic cotton producers:
- The Cotton Corporation of India (CCI) purchased nearly 100 lakh bales of cotton from farmers at Minimum Support Price (MSP) during the ongoing cotton season spending ₹37,500 crore, and has sold 73 lakh bales in the market.
- For the 2025-2026 cotton season, the government has hiked the MSP by 8%. The MSP mechanism by CCI ensures that farmers receive at least 50% above their cost of production. Imported cotton often caters to specialised industrial requirements and does not substitute domestic cotton.
India’s textile industry is the second-largest employment provider in the country. The textile industry seeks a stable policy from the government so that the industry can plan for raw material procurement.