India's Import Duties: Mills Win This Round as Farmers Absorb the Cotton Risk. Once Again

The waiver begins with a competitiveness claim, not with a settled cotton strategy. Organised textile and apparel bodies had spent months building a case that the 11% duty burden was structurally disadvantaging Indian mills and exporters against regional peers, and that case, formally evidenced, publicly lobbied, and framed around employment rather than mill profits, was ultimately persuasive enough to override the protective logic that had restored the duty only five months earlier.

The Confederation of Indian Textile Industry (CITI) released and publicised a Gherzi-ICAC study arguing that the duty was damaging India's global textile and apparel competitiveness. That study gave the lobby something more durable than complaint: a formal analytical instrument linking cotton trade policy to wider structural problems in supply, pricing, and value-chain performance. It converted a cost grievance into a competitiveness finding.

The Apparel Export Promotion Council (AEPC) reinforced the claim from the downstream end. AEPC's public position was that temporary exemption from customs duty and AIDC would lower input costs, improve availability, and relieve garment manufacturers and exporters already under pressure from elevated cotton and yarn prices. The Southern India Mills' Association (SIMA), alongside broader clusters of textile associations, added weight to representations made jointly in the run-up to the decision. AEPC positioned the waiver as necessary relief for exporters and MSME manufacturers, not as a benefit flowing to spinning mills alone. That reframing mattered.

What made the industry case effective was its structural fusion. Three distinct pressures, supply adequacy, yarn affordability, and export survival, were consolidated into a single policy claim, making the waiver appear not as a concession to one segment of the value chain but as a support measure for the sector's most politically visible constituencies. Downstream exporters and MSME apparel manufacturers carry more employment and more electoral legibility than spinning mills. Attaching the mill-level cost argument to their condition changed the terms of the demand entirely.

The competitive comparison with Bangladesh and Vietnam sharpened the argument further. Both countries can access imported cotton without comparable duty costs, giving their mills and garment exporters a raw-material price advantage at the point of bidding for international orders. In a market where export margins are already thin and buyer switching costs are low, that differential is not theoretical. Industry representatives framed it as a structural handicap, and the framing held.

The processing and export end of the value chain gained policy priority because its cost pressures could be presented as an employment and competitiveness problem, not merely as a commercial interest. That is the mechanism through which a duty reversal, unpopular with farm constituencies, was made politically viable inside a five-month window.

The political viability of the waiver rested on a transmission assumption: that cost relief entering at the raw-material stage would travel through the chain to the exporters and MSME manufacturers whose competitive position had justified the measure. The government's stated rationale is threefold: ensure adequate raw-material supply, reduce input costs, and improve export competitiveness. Each depends on the one before it in practice, even if the policy does not state that dependency explicitly. Supply adequacy requires mills to import, yarn affordability requires those savings to pass into pricing, and competitive export bids require the benefit to reach garment manufacturers, a chain the policy assumes but no tariff instrument enforces.

The evidence from the earlier window clarifies what that constraint means in practice. Industry bodies supported the renewed 2026 waiver on the explicit ground that duty-free imports had already proved useful for procurement and order fulfilment, indirect but genuine confirmation that mills found the earlier exemption valuable at the raw-material stage. That is the narrow sense in which the 2025 measure worked. India's textile and apparel exports nonetheless declined in FY26 despite that duty-free window, which means whatever procurement relief mills gained did not convert into order recovery or market-share retention downstream.

Several structural conditions explain the gap. Low cotton yields, acreage shifts away from cotton, climate-related quality variability, and the recurring grade mismatch between domestically available staple and export-order specifications are not addressed by a five-month tariff suspension. The Cotton Association of India (CAI) projects India's 2025-26 cotton crop in the range of 317-320.5 lakh bales, alongside estimated imports of 50 lakh bales, indicating that domestic supply is substantial but sensitive to revision, and that import dependence reflects grade and availability pressures that price relief alone does not resolve.

For mills buying cotton, the benefit is direct and immediate. For yarn buyers and garment exporters further down the chain, it is conditional on those mills choosing to transmit savings rather than absorb them as margin recovery. In a sector under sustained cost pressure, that transmission is not automatic. The waiver works most directly for its least visible beneficiary, the spinning mill, while its political justification rests entirely on benefits reaching the most visible ones. It is a design constraint that short-window tariff relief cannot overcome.

The duty that the waiver suspends is the same instrument that supports domestic cotton price formation. Its removal lowers costs for mills and simultaneously weakens the border protection that growers rely on when domestic supply is under pressure. Those two effects are not separable. The waiver achieves one by producing the other.

When imported cotton arrives at a landed cost reduced by roughly 11%, it introduces a competing price reference into a domestic market that had been partially insulated by the duty. Cheaper imports depress domestic prices directly or, in a tighter supply environment, cap price increases growers might otherwise have received. The mill gains bargaining leverage; the grower loses it. The waiver formalises that tension for a five-month window.

How much pressure lands on farmers depends on three variables: the actual volume of imports that materialise, the timing of those arrivals relative to domestic marketing-season patterns, and the extent to which price-support operations absorb the displacement. CAI's estimate of 2025-26 cotton imports at 50 lakh bales is large enough to matter for price formation if realised. Whether it is realised depends on how aggressively mills import once the landed-cost advantage is confirmed.

The complication extends to procurement institutions whose function is to support domestic prices when private demand weakens. When cheaper imports are available, agencies holding higher-priced domestic cotton face mark-to-market pressure on stockholding positions; private buyers can delay or reduce purchases from growers while the import window remains open. For farmers, the risk is not only lower prices but a deterioration in the certainty of who will buy, at what price, and when.

The government has not formally abandoned farmer protection. The duty regime's restoration in January 2026 after the previous suspension shows the protective logic reasserts itself once industry pressure recedes. But the pattern of repeated suspension means growers face recurring periods of weakened price insulation precisely when processors are under cost stress, which is also when domestic supply tends to be tightest and grower bargaining power most exposed.

The policy conflict is structural, not incidental. The waiver improves the mill's procurement position by weakening the same border measure that supports the grower's price. Its burden falls unevenly across the value chain, and the side absorbing it is the one whose interest was not the stated justification for the decision.

October and the Unresolved Contradiction

The October 2026 expiry is the unresolved pressure point. Duty restored means mills face the same cost handicap that produced this waiver; duty suspended indefinitely means growers absorb the consequences of a temporary fix that hardened. Either way, the instrument is a stop-start tariff switch that decides, each cycle, which side of the cotton economy takes the shock: and settles nothing.