Top official sources in the textiles ministry told Business Standard that the prime minister has given his approval to the demand of the ministry to bring down the duty on cotton imports to nil.
The textiles body, Confederation of Indian Textiles Industry (CITI), in its representation, had asked for the complete removal of the duty amid rising exports leading to rise in cotton prices in the domestic market.
At present, the import duty on cotton is about 14 per cent which includes custom duty of 10 per cent and additional custom duty of 4 per cent.
In the latest meeting of Cotton Advisory Board (CAB), the government expected that 8.5 million bales (1 bale = 170 kg) of cotton would be exported in year 2007-08. However, the official added: "The export are well above 10 million bales."
PD Patodia, chairman, CITI, said the domestic cotton prices were ruling at Rs 1,500 more than the international cotton prices per candy (1 candy = 356 kg). "The mills will import cotton from countries like Brazil and from South African countries," said Patodia.
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Meanwhile, a BS Reporter from Bangalore adds, Shankarsinh Vaghela, union textiles minister said in a press conference that the withdrawal of the duty would help tame soaring prices of cotton in the local market.
Despite achieving a record production in the country at an estimated 31.5 million bales in the cotton season (October-September) of 2007-08, cotton prices have risen by about 35-40 per cent across varieties, compared with the previous fiscal.
For instance, according to industry sources, cotton prices in Vidharba region are as high as Rs 3,600 per quintal, as against Rs 2,000-2,200 during the previous fiscal.
Though the rupee-hit textiles industry is slowly recovering from the crisis, rising costs of labour, transportation and power have adversely affected the industry.
The industry bodies, including CITI, had recently met the textiles minister and urged for removal of import duty in order to enable the industry to procure cotton at affordable prices. It is learnt that the industry bodies had also accused the international traders of hoarding cotton stocks leading to an unprecedented increase in prices recently.
Following this, the textiles ministry has made out a case for the abolition of import duty on the ground that the move would benefit the domestic market.
The textiles ministry has submitted a proposal to the finance ministry and the commerce ministry for the withdrawal of import duty on cotton. The proposal is under consideration by the ministries and the PMO. If accepted, the duty cut will ease prices of raw cotton at the domestic level, said Vaghela.
In view of the record domestic production this year, the textiles ministry has also put forth a proposal to remove 3 per cent export duty on cotton to boost exports. If implemented, this measure would immensely benefit farmers in the cotton growing states like Karnataka, Punjab, Maharashtra and Andhra Pradesh, said Vaghela.
India exported 5.8 million bales of cotton in 2006-07 against 4.7 million bales in 2005-06.
Consequently, cotton imports have declined from around 1.7 million bales in 2002-03 to 0.5 million bales in 2006-07. Imports are expected to be around 0.65 million bales in 2007-08. Since 2005-06, the country has become a net exporter of cotton.
Cotton production was at a record high of 27 million bales in the cotton season of 2006-07 and is expected to touch 31.5 million bales in the 2007-08 cotton season.
Domestic consumption of cotton by mills, non-mills and the SSI sector stood at 29 million bales in the cotton season of 2006-07 and is estimated to be 31 million bales in the 2007-08 cotton season.
The cotton yield has improved considerably from 399 kg in 2003-04 to 553 kg in 2007-08 due to the implementation of Technology Mission, the minister added.
On the textiles export front, though India has achieved considerable growth in exports during the fiscal, the actual realisation in terms of rupee has been severely affected as the rupee witnessed 12 per cent appreciation in FY 07-08.
However, the rupee has recovered in the last two months and if the tempo is maintained, Indian textile exports would grow at 20 per cent per annum in the coming years, Vaghela said.
During 2006-07, textile exports were valued at $18.73 billion (Rs 84,752 crore) and are estimated to be at $20.25 billion (Rs 81,000 crore) in 2007-08.