India set to extend duty-free cotton imports as mills seek relief from high prices

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Duty-free cotton imports extension

Highlights

India is expected to extend its duty-free cotton import window by two months beyond October 31 amid continued high domestic prices above 9,000 rupees per 100 kg.
India's cotton output may fall below 29 million bales in 2026-27 versus demand exceeding 34 million bales, with the stock-to-use ratio at a five-year low of 31%.
India's cotton imports rose 63% year on year to $1.1 billion in the first half of the fiscal year, but higher U.S. futures, freight costs, and a weaker rupee could limit further growth.

Planned extension of import duty relief

As reported by Reuters, India is expected to extend its duty-free cotton import window for another two months after the current exemption ends on October 31, according to three government and industry sources familiar with the matter.

India, the world's second-biggest cotton producer after China, removed the 11% customs duty on cotton imports for five months from June 1 to October 31 to improve supplies during the lean season. The government is expected to issue an order soon after inter-ministerial consultations are completed, the sources said.

New-season arrivals normally begin to cool domestic prices in October, but rates have stayed firm this year because of weaker output expectations. Domestic cotton prices are above 9,000 rupees per 100 kg, compared with the government-set floor price of 8,717 rupees for the new season.

Supply shortfall shapes market impact

Analysts say extra imports could support global cotton prices while helping contain domestic rates after patchy monsoon rains hurt crop prospects. Dipanshi Agarwal, principal analyst at S&P Global, said lower domestic output, a stock-to-use ratio of about 31%, the lowest in five years, and strong textile demand support the case for extending the duty exemption, although the move could weigh on local prices.

Trade estimates show India's cotton output is likely to fall below 29 million bales in 2026-27, against demand of more than 34 million bales. Industry participants also point to the continued use of outdated genetically modified cotton seeds in the absence of newer upgrades, leaving crops more exposed to pest attacks and lower yields.

A dealer with a global trading house said higher U.S. cotton futures, freight costs and a weaker rupee could still restrain large import volumes even if the tax waiver is extended. Even so, trade ministry data show India's cotton imports rose 63% year on year to $1.1 billion in the first six months of the current fiscal year from April, while the Confederation of Indian Textile Industry says a longer suspension of import tax would help domestic manufacturers compete with Vietnam and Bangladesh.

Our earlier report on India’s widening merchandise trade deficit highlighted how September’s gap expanded as imports rose faster than exports. We noted that elevated energy prices were a key driver of the larger import bill, and that a persistently wider deficit can add pressure to India’s external balance even as the country pursues export-market diversification through new trade agreements.

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