Import Duty on Cotton Scrapped to Promote Exports and Cut Price

· BCD (5%) and AIDC (5%) Exempted

· Exemption Valid for Five and a Half months, that is, 14 April to 30 Sept 2022

The government on Wednesday removed a 5% basic customs duty on cotton imports to shore up domestic supplies of the fibre, an acute shortage of which has badly hit the country’s textiles-and-clothing value chain.

Prior to the move, cotton imports in India were effectively taxed at 11% (including agriculture infrastructure development cess and surcharges). With the latest notification by the revenue department, the cess and the surcharges will also cease to exist, which will allow the import of cotton at zero duty.

Prices of the commonly used cotton variety have more than doubled to breach the Rs 90,000-mark per candy of 356 kg since February 2021 when an import duty was raised. Local cotton prices have also exceeded global rates by as much as Rs 1,500-2,000 per quintal.

As per News report of this week, scores of export orders have either been cancelled by western buyers or been diverted to India’s competitors like Bangladesh, Vietnam, China and Pakistan in recent months after the steady spurt in cotton prices forced domestic players to try and renegotiate deals.

Cashing in on a resurgence of demand from advanced economies, India had shipped out textiles, garments and allied products worth almost $40 billion in FY22, up 67% from a year before (albeit aided by a lower base). In a meeting with commerce and textile minister Piyush Goyal on April 4, a delegation of top executives of various bodies representing the textiles and garment sector sought an abolition of import duty on cotton to tide over the acute raw material shortage.

India’s competitors Vietnam and Bangladesh allow their industries to buy the fibre from abroad at zero duty. This had offered them substantial advantage in raw material costs, in addition to their duty-free access to critical markets like the US and the EU, a privilege that New Delhi doesn’t enjoy.

They stressed that allowing cotton imports at zero duty is unlikely to hurt Indian cotton farmers, as they have already sold this season’s produce to traders, who, in turn, are allegedly holding on to stocks to profit from an artificial shortage in the market. In any case, such imports are unlikely to cross 4 million bales of 170 kg each.

[Notification No. 21/2022-Customs dated 13 April 2022]

G.S.R. (E).- In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962) and section 124 of the Finance Act, 2021 (13 of 2021) (hereinafter referred to as the said section), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts goods of the description specified in column (3) of the Table below and falling within the Chapter, heading, sub-heading or tariff item of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) as specified in column (2) of the said Table, when imported into India, from so much of the duty of customs leviable thereon under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), as is in excess of the amount calculated at the standard rate specified in the corresponding entry in column (4) of the said Table and from so much of the Agriculture Infrastructure and Development Cess (hereinafter referred to as AIDC) leviable thereon under the said section, as is in excess of the amount calculated at the rate specified in column (5) of the said Table, namely: -

Table
S.No.	Chapter, Heading, sub- heading or tariff item	Description of goods	Standard Rate	AIDC Rate
(1)	(2)	(3)	(4)	(5)
1.	5201	All goods	Nil	Nil

2. This notification shall come into effect on the 14th April, 2022, and will remain in force up to and inclusive of the 30th September, 2022.

[F. No. CBIC-190354/288/2021-TRU]