India’s cotton duty suspension offers lifeline to textile exporters amid supply crunch

India's decision to temporarily eliminate the 11 per cent import duty on raw cotton reflects the growing urgency within the country's textile ecosystem. Effective from June 1 until October 30, 2026, the removal of both the Basic Customs Duty and the Agriculture Infrastructure and Development Cess (AIDC) is intended to ease pressure on spinning mills and apparel manufacturers grappling with a widening domestic cotton shortage.

The intervention arrives at a crucial moment for an industry seeking to capitalise on new trade opportunities with major Western markets while simultaneously navigating volatile raw material costs. It also marks the fourth tariff adjustment in the cotton sector this year, underlining the delicate balancing act between protecting farmer incomes and preserving export competitiveness.

A deficit that could not be ignored

The immediate trigger behind the tariff waiver is a gap between domestic cotton production and industrial consumption. Current estimates place cotton production at 291 lakh bales, while spinning mills require approximately 312 lakh bales to maintain operations. The resulting deficit of 21 lakh bales has tightened supplies across the market and pushed prices sharply higher.

The situation has been worsened by disruptions in global shipping routes linked to ongoing geopolitical tensions in West Asia. Delays in cargo movement and rising freight premiums have added another layer of cost pressure for manufacturers already struggling with limited domestic availability. Within a span of six weeks, domestic cotton prices climbed from around Rs 52,000 per candy to nearly Rs 63,000 per candy, creating immediate concerns for the country's textile exporters.

Table: Overview of India's cotton and textile market

The figures highlight a broader challenge. India is targeting aggressive export growth, yet the sector is facing declining shipments across several key categories due to rising production costs.

Cost inflation travels downstream

The cotton shortage has had repercussions far beyond spinning mills. Since raw fibre typically accounts for 80-85 per cent of spinning costs, even modest fluctuations in cotton prices have a disproportionate impact on the economics of yarn manufacturing. As cotton prices rose, spinning companies passed the increase downstream to fabric producers and garment manufacturers. Export-oriented businesses operating on fixed-price contracts found themselves trapped between rising procurement costs and limited ability to renegotiate with overseas buyers.

Industry leaders warn that such volatility can quickly erode India's competitiveness against rival sourcing destinations. Apparel manufacturers compete in a global marketplace where purchasing decisions are often determined by marginal cost differences.

The experience of Tirupur-based Euro-Tex Apparel illustrates the challenge. The company reportedly witnessed a 20 per cent rise in cotton yarn procurement costs while negotiating seasonal contracts with UK retailers. Unable to pass on the increase to customers, management reduced production utilisation by 25 per cent to protect profits. Experts argue that access to cotton at international benchmark prices is critical if exporters are to secure orders for upcoming retail seasons in Europe and North America.

Why imports are about more than quantity

The duty waiver is not merely about bridging a supply gap. It is also aimed at ensuring access to specialised cotton grades that remain scarce within the domestic market. Industry estimates show that around 70 per cent of anticipated imports will consist of medium- and long-staple cotton varieties needed to maintain regular mill operations. The remaining 30 per cent is expected to comprise Extra-Long Staple (ELS) cotton, including premium varieties such as American Pima and Egyptian Giza. India currently produces less than 15 per cent of its ELS cotton requirements, forcing manufacturers to rely heavily on imports for premium textile production.

These fibres play a crucial role in high-value categories such as luxury apparel, fine-count yarns and premium home furnishings. The value addition generated through spinning, weaving and garment manufacturing can multiply the commercial worth of imported cotton several times before products reach global retail shelves.

Export competitiveness under pressure

The tariff waiver also addresses concerns that Indian manufacturers have been operating at a structural disadvantage compared with regional competitors. Industry associations have long argued that import duties artificially inflate production costs, especially during periods when domestic cotton prices exceed international benchmarks. As per to industry estimates, the previous duty structure added approximately 8-10 cents per kg to the cost of producing combed yarn.

As a result, several spinning units in Gujarat and Maharashtra found themselves producing yarn at costs higher than international market prices. Some manufacturers shifted towards synthetic blends, while others reduced operating schedules to avoid accumulating expensive inventories.

The impact extended into downstream clusters such as Ludhiana and Panipat. Northern Loomworks, a Panipat-based home textile exporter, reportedly faced shortages of high-grade long-staple fibre required for premium bed linen production. Unable to secure competitively priced raw material, the company declined a major export order and left nearly 40 per cent of its weaving capacity idle for several weeks.

For industry bodies, the duty waiver provides an opportunity to restore parity with competing manufacturing hubs such as Bangladesh and Vietnam, where cotton imports generally enter duty-free.

Challenge of balancing competing interests

While the move has been welcomed by textile manufacturers, policymakers remain conscious of its implications for farmers. Lower-cost imports can help mills and exporters but may also weaken domestic cotton prices, particularly during harvest periods. This concern explains the government's preference for temporary import windows rather than permanent tariff elimination. Previous episodes of unrestricted imports have coincided with periods when farmers were forced to sell cotton below remunerative levels.

However, frequent short-term interventions can also create uncertainty. Market participants often adjust procurement and stocking strategies based on expectations of future policy changes, contributing to speculative behaviour across the supply chain. The latest waiver therefore serves as both an emergency measure and a reminder of the need for a more predictable framework governing cotton trade.

Building a stronger cotton ecosystem

Government have emphasised that tariff relief is intended only as a short-term bridge. The long-term solution lies in improving domestic productivity and strengthening supply resilience. The recently approved Rs 5,659 crore Mission for Cotton Productivity aims to address these structural weaknesses through better seed technology, modernised ginning infrastructure and expanded agricultural extension programmes. The initiative seeks to increase average cotton yields from 440 kg per hectare to 755 kg per hectare by 2031.

For India's textile industry, which aspires to increase its global footprint over the coming decade, reliable access to quality raw material will remain a defining factor. The current duty waiver may ease immediate pressures, but sustainable growth will depend on building a cotton ecosystem capable of supporting both farmers and manufacturers while enabling the country to achieve its long-term export ambitions.