Cotton import duty & export incentives ineffective from Jul 8

10 Jul '08

2 min read

Government of India announced on July 9, removal of import duty on cotton and withdrawal of export incentives as measures to stabilize soaring cotton prices and assure a smooth domestic supply of the raw material.

Both the decisions are declared to be in effect from July 8 and are believed to give respite to numerous mills which would have otherwise opted to go on strike. However, farmers would be hardly impacted by this move since they have already sold crops for this season.

Import duty on cotton stood at 14 percent, of which 10 percent constituted the basic Customs duty while 4 percent accounted for special countervailing duty. On the other hand, export incentives in form of duty drawback were made available at the rate of 1 percent of freight-on-board (FOB) value. The recently taken Government measure would bring changes on both the fronts.

A section of people in the industry believe that since large-scale cotton imports are improbable, removal of import duty is only going to have a sentimental effect on the market. Moreover, cotton import is limited only to premium long staple varieties and therefore only those making use of it would benefit from this policy.

Again, mills in India use domestically sourced fibre as cotton here is relatively inexpensive compared to the varieties available in the global market. Thus, scrapping of duty drawback is actually a loss, because there is no incentive to exporters who are anyways entitled to duty-free imports.

The textile ministry, which welcomed the decision to get away with import duties and export incentives, was otherwise critical of the Finance Ministry's move to impose duty on cotton exports.

This Governmental decision also found support of the Confederation of Indian Textile Industry (CITI) who firmly believed that the one-day closure of 4,500 mills across the country acted as a major force to bring about this conclusion.

Official statistics have revealed that not only did cotton production increase by 35 percent in 2007-08 to 35 lakh tons, exports also experienced a commendable growth from 58 lakh bales to 85 lakh bales resulting in a 40 percent rise in the past year. However, cotton imports have also risen in the meantime, from 5.5 lakh bales in 2006-07 to 6.5 lakh bales in 2007-08.

Ministry Of Finance, India

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