The Indian Textile industry is predominantly cotton based as it is the second largest producer and consumer of cotton in the world, and it is unable to operate at a nominal level due to sluggish demand and high volatility in cotton price.
The imposition of 11 percent import duty on cotton during the Union Budget 2021-22 with an objective to protect the livelihood of Indian cotton farmers has greatly increased the domestic cotton price because of the import parity pricing policy adopted by the trade. Though the increased cotton price has supported the farmers to a small extent, it has hugely benefitted the traders and MNCs. As a result of the increased price, it has completely eroded the competitiveness of Indian cotton textile value chain which exports almost 2/3rd of the cotton produced in the country as value added textile products.
Most of the cotton arrives in the market during the peak cotton season (November to March). Since the majority of the spinning mills are MSME in nature, they can buy and stock cotton only for upto 3 months (working capital constraint) and to bridge the supply-demand mismatch during the off-season (April to October) they opt for imports which has become unviable due to 11percent import duty.
Considering the plight of the industry, the Government had given exemption to cotton from 11 percent import duty during April 2022 to October 2022 (off-season) which had greatly benefitted the industry to source cotton at an internationally competitive price and sustain its competitiveness.
Though the area under cotton has increased from 124 lakh hectares to 130 lakh hectares, the cotton crop for the current season is likely to be only around 320 lakh bales. The cotton price has dropped over 25 percent when compared to the last year and over 40 percent of the cotton is yet to arrive in the market. The farmers and traders are holding the same anticipating increase in the price. Hence, the industry started facing the shortage of cotton and the uncertainty is still continuing.
Ravi Sam, Chairman, SIMA, has appealed to the Hon’ble Union Minister of Finance to exempt the cotton from 11% import duty during off-season (i.e) April to October as was done last year to ensure raw material security, avoid mass production stoppage and depletion in exports. He has said that cotton textiles exports have dropped over 23 percent when compared to the previous year, thus, requiring cotton to be made available to the manufacturing sector at an internationally competitive price. He has said that duty exemption is essential to revive the export performance.
Ravi Sam has stated that the industry normally needs 320 to 330 lakh bales of cotton as against the crop size of 310 to 320 lakh bales. He pointed out that out of 310 to 320 lakh bales of cotton produced in the country, only around 80 percent is of good quality and the remaining cotton cannot be used for producing high value added textile products. He has added that 30 to 40 lakh bales is normally exported and therefore the industry would face acute shortage if the import duty exemption on cotton is not announced immediately. He has said that it would take three to four months’ time for the imported cotton to arrive at the mills premises and therefore it is essential to remove the import duty immediately to enable the mills to enter into import contracts.
Ravi Sam has pointed out that with 11percent import duty; the Indian cotton is expensive by 15 percent and thus losing several export orders. He has mentioned that over 2/3rd cotton produced in the country is exported as value-added textile products that generate direct employment to over 11 lakh people and fetches around $ 25 bn as foreign exchange. SIMA Chairman has stated that though India-Australia ECTA allows duty-free import of three lakh bales of cotton annually, the exporters from Australia demand three to five cents per pound premium due to the import duty levied by the Union Government thus squeezing the benefit of FTA and affecting the global competition. He has said that adequate availability of quality cotton at an internationally competitive and stable price is essential for the industry to recover from the current sluggishness and achieve the sustained growth.
SIMA Chief has stated that India’s cotton yarn exports decreased to 48.5 cr kgs during April 2022 to January 2023 as against 118.5 crore kgs exported during the same period in the previous year. He has appealed to the Hon’ble Minister of Finance to exempt the cotton from 11% import duty for the off season (April to October) and exempt the ELS cotton from import duty as the country produces only around 20 to 25% that too of inferior quality. He has said that the Union Budget 2023-24 has brought separate HSN Code for ELS cotton and therefore, the Government can exempt the ELS cotton from import duty on long term basis till the current Government Policies to increase the production of ELS cotton yields results while exempting the normal cotton only during the off season.
