Customs duty on cotton: Prices of garments, made-ups to rise

Prices of high-quality cotton fabrics, made-ups and readymade garments are set to rise in the domestic market with the Finance Minister announcing the imposition of 10% basic customs duty in the Budget 2021-22 on the import of extra-long staple cotton.

Following this, the cost of import of Giza cotton from Egypt and Supima cotton from the US is expected to rise and the Indian textile manufacturers further fear they will not be able to compete in the global markets vis-à-vis Bangladesh, Pakistan, Mexico, Turkey, South Korea and Vietnam, which enjoy zero duty.

"The move to impose 10% basic customs duty on raw cotton was surprising. This will make import of extra-long-staple cotton costly especially from Egypt and the US. The import duty will increase the domestic prices of cotton and value-added products," said Manoj Patodia, Chairman, The Cotton Textiles Export Promotion Council (TEXPROCIL).

Giza and Supima cotton are used mainly in the production of fine count yarns, which are used in Made-ups, etc. Further, many of the foreign buyers of Made-ups in the US and the EU insist upon the use of Giza or Supima cotton in the finished products, said R K Dalmia, Senior President & Whole-time Director, Century Textiles and Industries Limited.

The duty of 10% on imports of superfine cotton will make exports of fabrics and Made-ups uncompetitive and the lost business opportunities will go to competing countries like Bangladesh, Sri Lanka, Pakistan, Vietnam and Cambodia, he said.

“In fact, some of the exporters have already pointed out that their buyers in the US have asked them how they are going to handle the situation arising out of the import duty on cotton in terms of pricing and they have been told very clearly by the buyers that they will shift all the pending orders to Bangladesh in case there is any price increase,” Dalmia said.

India exports $5 billion worth cotton made-ups annually and is the second-largest exporter of cotton made-ups next to China with a share of about 11%. China’s share is about 34%. India is also the second-largest exporter of cotton made-ups to the US with a share of about 21.25%, while China accounts for 47%. Other exporting countries are Pakistan, Mexico, Turkey, Canada, Vietnam, Portugal, Bangladesh and Taiwan.

India is the fourth largest exporter of cotton made-ups to the EU with a share of 12% next to China (36%), Pakistan (18.50%).

“The move to announce customs duty is not only a surprise but shocking,” says K Lalpuria, Executive Director & CEO, Indo Count Industries Ltd.

According to him, there was no cause for the government to impose import duty on cotton as the country barely imports 1-1.5 million bales of extra-long staple cotton, which is just 3% of its consumption because it is not grown in the country. As a result of this duty, the cost of value-added cotton products will go up in the range of 7% for end-consumers, he said.

The government should understand the concerns of the industry and roll back the duty, he added.

Rajesh Masand, President of CMAI said the imposition of duty does not make much sense for the government as the quantity imported is very less and there is not much revenue to the government. “We have seen garment prices going up by 10% in the last few months and the duty on imported cotton will result in further rise in the garments,” he said.