The Hindu Business Line : Centre scraps import duty on raw cotton

New Delhi, July 9 Bowing to the demands of the domestic spinning industry, the Centre has scrapped basic customs duty as well as special additional duty of customs (SAD) on raw cotton imports to boost supplies and soften domestic prices.

Hitherto, raw cotton imports attracted basic customs duty of 10 per cent and SAD of 4 per cent.

The Finance Ministry has also now withdrawn drawback benefit of 1 per cent of free on board (FOB) value of raw cotton exports. The latest move on the import duty front would result in the Centre foregoing customs duty revenues of about Rs 100 crore this fiscal, a Finance Ministry official told Business Line.

On whether the Government was planning to introduce any export duty on cotton exports, the Finance Ministry official replied in the negative. There is also no plan to place any ban on cotton exports. The rationale for withdrawing drawback benefit was to discourage exports and thereby improve domestic availability, the official explained. The import duty removal is effective from Tuesday, July 8.

The Finance Ministry expects cotton imports to increase in the wake of removal of import duty. In 2007-08, 6.50 lakh bales were imported, up from the 5 lakh bales imported in the previous year. However, the level of imports in 2007-08 was much lower than the 17.67 lakh bales imported in 2002-03.

Both domestic production and exports of raw cotton have been on the rise in the recent years. Cotton production increased from 244 lakh bales in the cotton season (Oct-Sept) of 2005-06 to 270 lakh bales in 2006-07 and is estimated at 315 lakh bales in 2007-08.

However, in the forthcoming season, production could take a hit as farmers in Punjab, Haryana and Rajasthan have sown about 29 per cent less area under cotton. Moreover, prime cotton producing regions such as Marathwada, Vidarbha and Telangana have so far recorded poor monsoon precipitation.

On the other hand, cotton exports grew from 47 lakh bales in 2005-06 to 58 lakh bales in 2006-07 and touched 65 lakh bales in 2007-08. Cotton exports are estimated to touch about 85 lakh bales this fiscal. The Cotton Advisory Board may even revise the export estimate to 95 lakh bales for the current fiscal.

Cotton consumption within the country had increased from 217 lakh bales in 2005-06 to 240 lakh bales in 2006-07 and to 310 lakh bales in 2007-08.

Pressing their demand for abolition of customs duty on cotton imports and regulation of cotton exports, a number of yarn mills in Southern India had given a strike call. Many employees of such mills had not reported for work on Wednesday in the wake of the strike call.