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India extends cotton import duty exemption till December, a day after US’ 50% tariff takes effect

News Desk6 months ago6 months ago1135 mins

In a move aimed at supporting the domestic textile and apparel industry, the Government of India has extended the exemption on cotton import duty until December 2025, just a day after the United States imposed a 50% tariff on Indian cotton exports. The decision reflects New Delhi’s effort to balance domestic industry needs with global trade challenges, particularly as Indian cotton exporters grapple with shrinking access to the lucrative US market.

This extension is expected to ease raw material costs for India’s textile value chain, which employs millions of people and contributes significantly to the country’s exports. However, experts warn that the simultaneous imposition of tariffs by the US could lead to loss of export competitiveness, particularly in sectors like yarn, fabric, and apparel.

Why Cotton Import Duty Exemption Matters

India, while being one of the world’s largest producers of cotton, often struggles with supply fluctuations and price volatility. Climate change, erratic rainfall, and pest attacks have affected cotton yields in recent years. At the same time, rising global demand has pushed domestic cotton prices to record highs, hurting manufacturers.

By extending the exemption on import duties, the government aims to:

Stabilize raw cotton supply for domestic textile mills.
Reduce production costs for yarn and fabric manufacturers.
Support export-oriented garment manufacturers competing globally.
Prevent inflationary pressures on cotton-based consumer goods.

The exemption will allow mills to source cotton at competitive global prices, ensuring uninterrupted production cycles.

US Tariff Shock: A Double Blow for Indian Exporters

The US decision to impose a 50% tariff on Indian cotton exports comes as a major setback, considering the American market is a top destination for Indian textiles and apparel.

Industry bodies have expressed concern that these tariffs could:

Reduce India’s competitiveness against rivals like Vietnam, Bangladesh, and China, which enjoy lower or preferential duties.
Lead to cancellation of export orders from US-based buyers.
Create surplus cotton stock domestically, putting downward pressure on farmers’ earnings.
Shift global sourcing preferences towards alternative suppliers.

Comparative Snapshot: India’s Cotton Trade

Indicator	Before Duty Exemption	After Duty Exemption	Impact of US Tariff
Import Cost of Cotton	Higher (due to 11% duty)	Lower (duty-free until Dec)	No impact
Domestic Mills’ Raw Material Availability	Limited	Improved	Neutral
Cotton Exports to US	Competitive	Same	Declines due to 50% tariff
Textile Exports Overall	Stable	Potential boost	Risk of slowdown

Textile Industry Reactions

The textile sector, one of India’s largest employment generators after agriculture, has welcomed the import duty exemption but remains anxious about the US tariffs.

Textile Exporters: Applauded the government’s swift move, noting that cheaper cotton imports will help maintain production cycles.
MSMEs in Garment Sector: Warned that despite lower input costs, US tariffs will directly affect order flows.
Farmers’ Concerns: Farmer groups have urged the government to safeguard domestic cotton growers, fearing cheap imports may depress local prices.

Long-Term Impact on Trade Balance

While duty-free imports may support domestic manufacturing in the short term, over-reliance on foreign cotton could strain the trade balance if not paired with higher-value textile exports.

Projected Outlook for India’s Cotton & Textile Trade

Year	Cotton Import Value (USD Billion)	Textile Export Value (USD Billion)	Net Balance
2023	2.1	40	+37.9
2024	3.0	42	+39
2025 (projected)	3.5–4.0	45–46	+41 to +42

The extension of duty exemption till December is expected to push imports higher, but if global demand weakens due to US tariffs, India may face challenges in maintaining a strong export balance.

Farmers vs Manufacturers: The Policy Dilemma

The government is now facing a delicate balancing act between protecting cotton farmers and ensuring competitiveness of the textile sector.

Farmers want minimum support price (MSP) protection to offset risks of falling prices due to duty-free imports.
Manufacturers insist that without cheap cotton, India cannot compete with global rivals.

This tug-of-war highlights the complexity of trade policy when global supply chains and domestic livelihoods intersect.

Global Trade Angle

The US tariffs are not just an economic issue but also reflect broader geopolitical tensions. Trade experts believe Washington’s decision is partly aimed at protecting its domestic cotton growers and reducing dependency on Asian suppliers.

At the same time, countries like Turkey, Egypt, and Brazil could benefit by filling the gap left by India in the American market.

Possible Government Measures Ahead

To mitigate risks, the Indian government is reportedly considering additional steps such as:

Incentivizing value-added textile exports to diversify away from raw cotton.
Exploring new trade partnerships with EU, Africa, and Middle East markets.
Extending credit support schemes for MSME exporters.
Reviewing export duty rebates to soften the blow of US tariffs.

If implemented, these measures could cushion India’s cotton sector from external shocks.

Conclusion

The extension of cotton import duty exemption till December signals India’s commitment to shielding its textile industry from global price volatility. However, the timing—just after the US imposed steep tariffs on Indian cotton—highlights the vulnerabilities of export-dependent sectors in an unpredictable global trade environment.

While manufacturers may benefit from cheaper raw material imports, farmers face the risk of suppressed domestic prices. On the other side, exporters must navigate a tougher US market where 50% tariffs could erode India’s competitive edge.

The coming months will test whether India can leverage duty-free cotton imports to sustain its textile production while also lobbying for fairer trade terms with global partners.

Disclaimer: This article is intended for informational purposes only, based on trade announcements and industry trends. It should not be considered financial, investment, or trade policy advice.