Domestic cotton prices are set to ease in the next one or two days, as the removal of an import duty on the fibre will facilitate greater purchases from overseas and force local hoarders to release the stocks, textile secretary UP Singh said on Thursday.
The government on Wednesday notified its decision to remove a 5% basic customs duty on cotton imports, as an acute fibre shortage has badly hit the textiles-and-clothing value chain.
Prior to the move, cotton imports in India were effectively taxed at 11% (including agriculture infrastructure development cess and surcharges).
With the latest notification by the revenue department, the cess and the surcharges will also cease to exist, which will allow the import of cotton at zero duty.
The duty relief will continue only up to the end of this marketing year through September 30, as the government wants to balance the interest of producers with that of consumers.
Prices of the commonly used cotton variety have more than doubled to breach the `90,000-mark per candy of 356 kg since February 2021 when an import duty was raised.
Cotton prices skyrocketed after domestic production is estimated to ease to about 34 million bales in the current marketing year from 36-37 million bales in 2020-21, industry executives said.
On top of this, about five million bales are expected to be shipped out.
In contrast, demand is set to jump to 36 million bales this year, against 32 million bales in 2020-21.
The textile secretary said local cotton used to be about 10% cheaper than comparable global varieties earlier. However, with the spurt in prices, domestic cotton is now as expensive as the international variety.
Domestic hoarders (usually traders), who used to think cotton purchases from abroad are not viable due to the import duty, will have no such incentive to hold on to the stocks in anticipation of a further rise in prices, according to Singh.
The price rise earlier this season has greatly benefitted farmers, Singh said.
However, the latest import duty removal is unlikely to hurt farmers, as they have already sold their produce in the market.
As FE has reported this week, scores of export orders have either been cancelled by western buyers or been diverted to India’s competitors like Bangladesh, Vietnam, China and Pakistan in recent months after the steady spurt in cotton prices forced domestic players to try and renegotiate deals.
Cashing in on a resurgence of demand from advanced economies, India had shipped out textiles, garments and allied products worth almost $40 billion in FY22, up 67% from a year before (albeit aided by a lower base).
Industry hails import duty relief T Rajkumar, chairman of the Confederation of Indian Textile Industry, said the move “will help the entire textile value chain to fight not only the steep increase in the cotton price…but also to meet the requirement of specialty cotton (extra-long-staple cotton, organic cotton, coloured cotton, etc.) to manufacture high-end products for their niche markets in advanced countries”.
A Sakthivel, president of the apex exporter’s body FIEO, said the duty breather will push exports of apparel and made-ups sectors significantly by softening the prices of yarn and fabrics as well.