The Budget’s announcement on increasing customs duty on cotton may cast a shadow on India’s advantage in premium/ high-end garment exports to the world, according to cotton stakeholders.
This, according to the trade sources, is primarily due to the additional cost for imported cotton — mainly the extra-long-staple (ELS) — used in making high-value-added textiles and garments, which are exported globally under premium labels. ELS quality of Giza Cotton is imported from Egypt, while Pima Cotton is sourced from the US. The cotton stakeholders also expressed concerns about losing international market, especially US and Europe, to neighbouring competitors Bangladesh and Pakistan as well as Vietnam.
In her Budget speech, Finance Minister Nirmala Sitharaman said that in order to “benefit farmers, we are raising customs duty on cotton from nil to 10 per cent and on raw silk and silk yarn from 10 per cent to 15 per cent.”
The Cotton Textiles Export Promotion Council has expressed its surprise over the government’s decision. The Council said that it is concerned of a higher cost for value-added products including fabrics, made-ups and garments as a result of the hike in the customs duty.
The Southern India Mills’ Association (SIMA) had also demanded a roll-back of the decision soon after the Budget.
Net imports
As per data by the Cotton Association of India (CAI), India’s cotton imports for the year 2019-20 (October to September) were projected at 15.50 lakh bales, whereas for the year 2020-21 it is estimated to be around 14 lakh bales, of which 4.5 lakh bales of cotton was imported as on December 31, 2020. India is the largest producer of cotton in the world with output for 2019-20 projected at 360 lakh bales and 358.50 lakh bales for the current year.
Surplus market
While the country is a cotton surplus market and a net exporter of cotton, the government’s decision to impose an import duty on cotton has surprised the industry.
“This is not a healthy move. Every year we import about 14-15 lakh bales, which is about 5 per cent of our total production. It is imported for special end-use application – namely high value-added garments exports. Indian goods already suffer the highest import duty in our destination markets like the US. With this import duty, all the high-value-added export orders will go to our competitors, Pakistan, Bangladesh and Vietnam,” said J Thulasidharan, President, Indian Cotton Federation told BusinessLine.
As per the trade insiders, the cotton textiles/garments using 51 per cent or more Pima cotton can qualify for Supima lable, which commands higher price and premium in the US market as well as other prominent garment markets.
Source : The Hindu Businessline
