India extends cotton import duty exemption till December, a day after US’ 50% tariff takes effect

The relief, which was initially notified for the period between 19 August and 30 September, has now been expanded to cover the last three months of the year, according to the finance ministry. Before the exemption, cotton imports into India attracted a combined duty of around 11%.

The decision, while aimed at shoring up supplies for the domestic textile industry ahead of the festival season, is also being seen as a calibrated gesture toward Washington at a time of strained trade relations.

This comes at a crucial time in India-US trade relations, with Washington recently imposing steep reciprocal tariffs on Indian exports and a standstill in trade talks. As per the joint statement issued by the leadership of both countries on 13 February, the first tranche of the Bilateral Trade Agreement (BTA) has to be finalised by the fall of 2025.

“This is a calibrated gesture that addresses US concerns while safeguarding domestic sensitivities,” said Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI). The extension window will allow New Delhi to retain bargaining leverage in bilateral talks, which stalled after the US cancelled its latest negotiating round, he said.

India’s cotton output has been falling, from about 33.7 million bales in FY23 to an estimated 30.7 million bales in FY25, forcing mills to step up imports. Industry associations had been warning that tight supplies could push up yarn and garment costs, threatening export competitiveness. With nearly 35 million people dependent on the cotton value chain and textiles accounting for about 80% of India’s textile exports, the government hopes the duty relief will cool raw material prices.

For American exporters, the move offers a direct opening. Almost all of India’s $1.2 billion cotton imports in FY25 were of fibre staple length 28 mm or above, a segment where the US is a leading supplier.

“Cotton was a sticking point in the discussions. This move can inject goodwill into the dialogue and perhaps pave the way for broader tariff concessions in textiles,” said an executive with a leading apparel exporters’ association.

India’s cotton imports surged to 2.71 million bales in FY25 from 1.52 million bales in FY24, with the US, Brazil, Egypt and African producers such as Benin and Tanzania among the key suppliers.

While Washington’s tariff hike has cast a shadow over bilateral trade prospects, New Delhi’s move on cotton is being read as an attempt to soften the edges of the dispute.

As per the findings of Crisil Ratings, revenue growth of India’s readymade garment (RMG) industry is set to nearly halve year-on-year this fiscal, as the imposition of 50% tariffs by the US on imports from India becomes effective from 27 August. This, coupled with a decline in profitability, will impact the credit metrics of industry players. The impact will vary by company, with some deriving more than 40% of their revenue from the US, it said.