Syllabus:
Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.
Context: The Government of India has exempted all customs duties on the import of raw cotton with effect from 19th August 2025 until 30th September 2025.
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• All customs duties include the removal of both the 5% Basic Customs Duty (BCD), the 5% Agriculture Infrastructure and Development Cess (AIDC), and a 10% Social Welfare Surcharge on both, cumulatively in an 11% import duty on cotton.
• The decision is notified by the Central Board of Indirect Taxes and Customs (CBIC).
• India imported 39 lakh bales of cotton in the 2024-2025 cotton season (October to September).
• Nearly two lakh bales of cotton are expected to be in transit now and these will benefit from the removal of the import duty.
Why was this move taken?
The exemption responds to persistent demands from the textile sector, which has been urging the government to remove import duties on cotton due to rising domestic prices and supply constraints.
Significance of the exemption of customs duty on cotton imports
• Enhance the availability of raw cotton in the domestic market.
• Stabilize cotton prices, thereby reducing inflationary pressure on finished textile products.
• Support the export competitiveness of Indian textile products by lowering production costs.
• Protect small and medium enterprises (SMEs) in the textile sector, which are more vulnerable to price fluctuations.
Concerns regarding the reduction in customs duty `
• The cotton-growing region, already prone to high farmer suicides, faces greater distress as removing import duty on cotton threatens the livelihood of lakhs of farming households.
• The cotton prices will fall and farmers will face distress and indebtedness.
• Sudden changes in import duty create unpredictability, affecting both farmers and the textile industry.
• It could increase reliance on foreign cotton, impacting long-term self-sufficiency.
Way Forward
• Set a fixed policy for duty-free cotton imports from July to October, aligning with southern hemisphere harvests
• Ensure fair Minimum Support Price and strengthen procurement systems to safeguard farmers.
• Invest in high-yield seeds, irrigation, and pest management to increase cotton productivity.
• Promotes sustainable farming practices and textile technologies to reduce overall production costs.
