Textile Lifeline: India Waives Cotton Duties Amid Slump in US RMG Exports

Policy Extension Aims to Ease Raw Material Costs, Protect Garment Sector from Declining US Exports

Government Extends Cotton Import Duty Exemption

To shield India’s textile industry from external trade shocks, the Finance Ministry has extended the duty-free import window for cotton until December 31, 2025.

• The exemption covers 5% Basic Customs Duty (BCD), 5% Agriculture Infrastructure and Development Cess (AIDC), and 10% Social Welfare Surcharge—removing a total burden of nearly 11% on cotton imports.
• Initially announced for August 19 to September 30, 2025, the policy is now extended by three more months, providing continued relief to textile manufacturers.

Relief for RMG Sector Hit by 50% US Tariffs

The move is especially timely for India’s readymade garment (RMG) sector, which is reeling from newly imposed US tariffs.

• On August 27, 2025, the US implemented a 50% import duty on Indian RMGs, sharply reducing the sector’s export potential.
• According to Crisil Ratings, the sector’s revenue growth may halve to 3–5% this fiscal, largely due to falling US demand.

Impact of Tariffs on Export Orders

India’s RMG sector had shown strong export performance in early FY26, with:

• 10% growth in overall exports to $4 billion in Q1.
• A notable 14% year-on-year growth in US-bound shipments.

However, the sudden tariff shock is expected to reverse this trend.

• Manish Gupta, Deputy Chief Rating Officer at Crisil Ratings, projected a drop in the US share of India’s RMG exports from 33% to 20–25%.
• He warned that Indian RMG exports to the US may become “minimal”, especially for labour-intensive SMEs, which will face immediate order declines.

Domestic Market to Cushion Export Blow

Despite weaker export outlook, India’s domestic RMG market is expected to remain resilient.

• Gautam Shahi of Crisil Ratings estimates 8–10% domestic revenue growth this fiscal.
• Growth will be driven by stronger economic conditions, rate cuts, and lower taxes, which could partially offset the export slowdown.

Why the Duty-Free Extension Matters

The cotton import duty exemption helps the industry in three critical ways:

1. Cost Control: Keeps raw material costs lower, especially critical as global cotton prices remain volatile.
2. Export Support: Eases the pressure on exporters navigating lower demand from the US.
3. SME Relief: Provides breathing room to small garment units disproportionately affected by tariff-related order losses.