The textile ministry has finalised a cotton distribution policy for approval by the cabinet committee on economic affairs (CCEA) and proposed up to 10% duty on exports of the fibre beyond the surplus quantity estimated by the government, two senior government officials said on Wednesday.
The CCEA is expected to consider the policy on Thursday, one of the officials told FE. According to a Cabinet note, the ministry has recommended the export duty of 10% ad valorem at freight on board, or a maximum of Rs 10,000 per tonne, whichever is less, for exports over and above the "declared/revised exportable surplus".
The government would announce the exportable surplus of cotton in September each year, factoring in the supply-demand estimates by the state-run Cotton Advisory Board (CAB), the ministry suggested.
Currently, traders can export cotton duty-free after registering contracts with the Directorate General of Foreign Trade (DGFT) and there is no restriction on quantity of shipments.
India is the world's second-largest cotton exporter as well as producer and China accounts for around 80% of its cotton exports.
The country has exported 10 million bales of cotton in the current year through September, compared with 12.9 million bales in the entire 2011-12.
The country expects to produce 34 million bales in 2012-13 from 35.2 million bales a year earlier. One bale equals 170 kilograms.
The ministry has also proposed that an inter-ministerial group (IMG), comprising representatives of the ministries of textiles, agriculture, commerce and finance, would review the cotton scenario periodically and make appropriate recommendations to change or scrap the export tax.
The Directorate General of Foreign Trade (DGFT) would be asked to keep a vigil on the pace and manner of cotton exports, it added.
The imposition of duty, the textile ministry said, would lead to higher revenue mop-up and also enhance "inclusiveness of the textile industry in the economic activity".
While this decision may benefit the textile industry by keeping domestic supplies steady, traders are flaying such a move.
"We strongly oppose any move to tax exports. The problem is who will decide the quantum of surplus cotton available in a year and