Cotton Gets a Duty-Free Window: India Waives Import Tariffs to Shield Textile Sector Amid US Pressure

In a strategic move aimed at cushioning India’s textile industry from mounting global pressures, the Ministry of Finance has announced a temporary exemption on import duties for raw cotton. Effective from August 19 and valid until September 30, 2025, the government has waived both the basic customs duty and the Agriculture Infrastructure and Development Cess (AIDC) on cotton imports. This decision comes at a critical juncture, as Indian exporters grapple with steep US tariffs and rising input costs.
Here’s a comprehensive breakdown of the announcement and its implications:

Policy Overview and Timeline

• The exemption applies exclusively to raw cotton imports.
• It is valid for a 42-day period, beginning August 19 and ending September 30, 2025.
• The notification was issued by the Central Board of Indirect Taxes and Customs under the Ministry of Finance.

Industry Relief and Strategic Timing

• The move offers immediate relief to the textile and garment sectors, which are reeling from a 50 percent tariff imposed by the United States on Indian exports.
• With the festive season approaching, demand for cotton-based products is expected to surge. The duty waiver helps stabilize raw material costs and ensures smoother production cycles.
• The Confederation of Indian Textile Industry (CITI) had long advocated for this exemption, citing the need to align domestic cotton prices with global benchmarks.

Export Challenges and Global Competition

• India’s textile exports to the US rose to USD 5.36 billion in the first half of 2024, but exporters are now facing severe headwinds due to the tariff hike.
• Competing nations like Bangladesh, Vietnam, Indonesia, and Cambodia face significantly lower US tariffs (ranging from 19 to 20 percent), putting Indian exporters at a disadvantage.
• Major US retailers including Walmart, Amazon, and H&M have reportedly asked Indian suppliers to delay shipments until tariff clarity emerges.

Domestic Cotton Supply and Price Dynamics

• India’s cotton output has declined from 33.7 million bales in 2022–23 to an estimated 30.7 million bales in 2024–25.
• Meanwhile, cotton imports have surged from 1.52 million bales last year to 2.71 million this year, reflecting a growing supply gap.
• The duty waiver is expected to ease price pressures and ensure availability of high-quality, contamination-free cotton for export-oriented production.

Sectoral Impact Across the Value Chain

• The exemption benefits the entire textile value chain—spinning mills, fabric manufacturers, garment  exporters, and home textile producers.
• It helps control yarn and fabric costs, reducing the likelihood of retail price hikes during the festive season.
• Home textiles and carpets, which rely heavily on exports, stand to gain significantly. These segments contribute 70–75 percent and 65–70 percent of their total sales to overseas markets, respectively, with the US accounting for over half of those exports.

Trade Diplomacy and Future Outlook

• The waiver signals India’s willingness to ease trade tensions with the US and could pave the way for more favorable bilateral negotiations.
• While the relief is temporary, industry bodies are hopeful that the government may consider an extension or permanent revision based on evolving trade dynamics.
• India has set an ambitious target of USD 100 billion in textile exports by 2030, and such policy interventions are seen as vital to achieving that goal.

Conclusion:

The government’s decision to temporarily scrap import duties on cotton is a timely and tactical intervention that addresses both domestic supply constraints and international trade challenges. As the textile sector navigates a volatile global landscape, this measure offers a much-needed breather and sets the stage for more resilient growth.

Source: Indian Express, August 19, 2025.