The Indian government has made a big adjustment to its strategy for the textile industry. It will now let people import raw cotton without paying taxes till September 30. This step is meant to make the important raw material more available and keep the sector competitive in the global market.
Before, there was an 11% levy on raw cotton imports. This included the Basic Customs levy and the Agriculture Infrastructure and Development Cess (AIDC). The Finance Ministry said that this exemption started on August 19 and will last for a little over a month.
The choice to do rid of the import charge comes at a very important time for India’s textile exporters, who are dealing with a lot of problems. The industry has been dealing with a “duty inversion” under the GST framework in the country. This happens when the tax rate on inputs (like raw materials) is greater than the tax rate on the finished output. This leads to tax credits that build up and make it hard for manufacturers to pay their bills.
Things are significantly worse on the international stage. Indian exporters, notably those in the textile industry, now have to pay a high 50% import tariff in the United States. This harsh tariff is made up of a 25% tax that is already in place plus a 25% penalty that will start on August 27. The US put this new tariff in place because India keeps buying oil from Russia.
The government wants to help textile manufacturers right away by lowering their raw material prices by temporarily doing rid of the import charge on cotton. This is a direct answer to the long-standing demands of the industry to deal with these economic pressures and help it stay competitive, especially against competitors like Bangladesh and Vietnam, which have lower tariffs.
The move is meant to keep cotton prices stable in India and help the “Make in India” manufacturing initiative by stopping exporters from moving their production to other countries to escape high US tariffs. The tariff respite is only temporary, but many people in the business are hopeful that it will last longer than September, depending on how global commerce changes.