Import duty on cotton (HS Code 5201)

Why in the News ? 

India has decided to continue the exemption on cotton import duty until December 31, 2025, following the United States’ move to impose a 50% tariff on textile and apparel imports from India.

Key Points: Import duty on cotton

• The exemption had initially been set to expire on September 30, 2025, but manufacturers argued that the timeframe was too limited to arrange new import orders.
• Aim: To support exporters and help the Indian textile industry deal with long-term cotton import orders.
• Cotton import duty exemption benefits the textile sector while protecting small cotton farmers with MSP safeguards.
• The US move to double tariffs on Indian textile/apparel exports (to 50%) is a major challenge for Indian exporters.
• In June 2025, India’s textile exports to the US increased by just 3.3%, while Vietnam and Bangladesh recorded much stronger growth of 20–40%.
• Industry associations such as CITI and AEPC emphasized the need for India to have equal trade conditions to stay competitive in the global textile sector.

 About HS 5201:

• Refers to “Raw cotton, not carded or combed” under the Harmonized System (HS) of tariff classification.
• This is the most basic form of cotton, which is widely imported by textile industries for spinning into yarn and further processing.

Import Duty Situation (India):

• India typically levies an import duty on raw cotton (HS 5201) to safeguard the interests of its domestic farmers.
• Earlier structure:

• Basic Customs Duty (BCD): 5%
• Agriculture Infrastructure and Development Cess (AIDC): 5%
• Effectively around 11% total duty.

• Exemption:

• To support the textile industry, the government had temporarily exempted import duty on cotton (HS 5201) from April 2022 onwards.
• Extended multiple times due to rising international cotton prices and shortage in domestic supply.
• Latest extension (as per article): Valid till December 31, 2025.

Purpose of Duty Exemption on HS 5201:

• Guarantee that the Indian textile industry has sufficient cotton supply.
• Help manufacturers place long-term import orders, especially after the US imposed 50% tariffs on Indian textile and apparel exports.

To maintain competitiveness of Indian exports against countries like Vietnam and Bangladesh, who enjoy cheaper imports and preferential access to US markets.