Import duty on cotton may be withdrawn

BS Reporter / Bangalore July 07, 2008, 18:38 IST

Yielding to the demands of the textiles industry, the Union textiles ministry has proposed to the Centre to withdraw import duty on cotton.

At present, the import duty on cotton is about 14 per cent. This includes custom duty of 10 per cent and additional custom duty of 4 per cent. Withdrawal of the duty would help tame soaring prices of cotton in the local market, said Union textiles minister Shankarsinh Vaghela at a press meet in Bangalore on Monday.
Despite achieving a record production in the country at an estimated 315 lakh bales in the cotton season (October-September) of 2007-08, cotton prices have risen by about 35-40 per cent across varieties as compared to the previous fiscal. For instance, as per industry sources, cotton prices in Vidharba region are as high as Rs 3600 per quintal, as against Rs 2000-2200 during the previous fiscal.
Though the rupee-hit textiles industry is slowly recovering from the crisis, rising costs of labour, transportation and power have adversely affected the industry. The industry bodies including the Confederation of Indian Textile Industry (CITI), had recently met the textile minister and urged for removal of import duty in order to enable the industry to procure cotton at affordable prices.
It is learnt that the industry bodies had also accused the international traders of hoarding cotton stocks leading to an unprecedented increase in prices recently.
Following this, the textiles ministry has made out a case for abolition of import duty on the ground that the move would benefit the domestic market. The textiles ministry has submitted a proposal to the ministry of finance and the ministry of commerce for withdrawal of import duty on cotton. The proposal is under consideration by the ministries and the PMO. If accepted, the duty cut will ease prices of raw cotton at the domestic, said Vaghela.
In view of the record domestic production this year, the textiles ministry has also put forth a proposal to remove 3 per cent export duty on cotton to boost exports. If implemented, this measure will immensely benefit farmers in the cotton growing states including Karnataka, Punjab, Maharastra and Andhra Pradesh, said Vaghela.
India exported 5.8 million bales of cotton in 2006-07 against 4.7 million bales in 2005-06. In 2007-08, exports are expected to touch 6.5 million bales.
Consequently, cotton imports have declined from around 1.7 million bales in 2002-03 to 500,000 million bales in 2006-07. Imports are expected to be around 650,000 million bales in 2007-08. Since 2005-06, the country has become a net exporter of cotton.
Cotton production was at a record high of 270,000 million bales in the cotton season of 2006-07 and is expected to touch 315,000 million bales in the cotton season of 2007-08.
Domestic cosumption of cotton by mills, non-mills and the SSI sector stood at 290,000 million bales in the cotton season of 2006-07 and it is estimated to be 310,000 million bales in the cotton season of 2007-08.
The cotton yield has improved considerably during 2003-04 to 2007-08 from 399kg to 553 kg respectively due to implementation of Technology Mission, the minister added.
On the textiles exports front, though India has achieved considerable growth in exports during the fiscal, the actual realisation in terms of rupee has been severely affected as rupee witnessed 12 per cent appreciation in FY 07-08. However, the rupee has recovered in the last two months and if the tempo is maintained, Indian textile exports will grow at 20 per cent per annum in the coming years, Vaghela said.
During 2006-07 textile exports were valued at $18.73 billion (Rs 84,752 crore) and they are estimated to be at $20.25 billion (Rs 81,000 crore) during 2007-08.