The sudden impost of customs duty on imported cotton has left the stakeholders in the cotton industry shocked. The user industry has expressed serious concerns over the viability of exports covering cotton yarn, fabrics, made-ups and garments.
The Budget sprang a surprise by imposing on imported cotton a five per cent basic customs duty plus a five per cent Agriculture Infrastructure Development Cess. The pre-existing 10 percentage point Social Welfare Cess continues, taking the aggregate duty burden to 11 per cent ad valorem on cotton.
India imports 15 lakh to 20 lakh bales (of 170 kg each) of the fibre, especially superior varieties like Extra-Long Staple (ELS), from origins such as the US and Egypt. While these contamination-free fine varieties are hardly grown in our country, there is demand for such varieties from the user industry to make superior quality garments, lingerie and so on. The imported cotton is blended with domestic cotton to add lustre and strength to the value-added end-product.
The user industry has a point when it argues that import of less than 20 lakh bales of cotton in the country’s overall annual cotton production of 330-360 lakh bales is hardly an issue; but it would surely exert a negative impact on export. There is no evidence that import of varieties such as ELS affects the domestic market. If anything, the duty is likely to erode India’s competitiveness in the export market.
It is unclear what considerations lay with the Finance Ministry when it proposed the impost. Support to domestic growers could not logically have been the reason as the country does not cultivate ELS variety on any notable scale. Revenue, too, could not have been a consideration as the volume of import is rather modest.
Someone in the policymaking circle should explain the rationale for this impost. There is need to unambiguously state the objects and reasons for the levy of duty. If not, the duty should be withdrawn because of its counter-productive impact. A nuanced yet matured approach on the part of New Delhi would be to engage with the user industry to explore ways to enhance ELS cotton production in India.
Atmanirbharta in ELS
However, importantly, a study of agro-climatically suitable areas for cultivation should be undertaken. Demand projections for the next 10-15 years should be worked out scientifically. A long-term, sustainable production, consumption and export policy is the way forward. All this will take time, but a beginning must be made without delay.
So, until India reaches reasonable self-reliance in cultivation of superior cotton varieties, import of duty-free cotton should be allowed especially to ensure value-added export.
Textile is a critical sector for the country with significant labour-intensity and export earnings. Trade and tariff policies of the government should help sharpen the competitive edge of the sector rather than disrupt its activities in unproductive ways.
The writer is a policy commentator and commodities market specialist. Views are personal