The Indian textile sector has always been a story of resilience. The sector, with its powerhouses in Tiruppur, Surat and thousands of MSMEs across India, has successfully embraced changing fashion trends, changing policies, shifting international trade patterns and cut-throat competition. The recent decision to remove the 11% import duty on cotton marks another important turning point for the industry and could influence production costs, export competitiveness, and growth opportunities across the textile value chain.
Why Did the Government Remove the 11% Cotton Import Duty?
The Government of India has exempted the 11% import duty on cotton for a limited period from June 1, 2026, to October 31, 2026, to keep cotton cheap and easily available for manufacturers. ‘According to the Ministry of Textiles, the decision to support the MSMEs will help strengthen the position of the textile industry in the global markets and ensure a steady supply of cotton across the value chain.’ The exemption is also meant to boost the availability of cotton in the off-season and help manufacturers grappling with rising input costs.
The move comes as the textile sector has been struggling with rising cotton prices and supply shortages that have increased the production costs of many firms. Industry bodies have been demanding relief from the government, saying the textile industry here is unable to compete with countries with easier access to duty-free cotton imports because of high input costs.
Why is Cotton Import Duty Important for the Textile Industry?
Cotton plays one of the major roles as a raw material for the textile industry of India as a whole. Hence, the hike or decline in prices of cotton will impact production costs, profit margins, and the overall competitiveness of the textile enterprises (specifically MSMEs).
Here’s why the cotton import duty matters:
- It affects raw material costs: Earlier, imported cotton attracted an 11% import duty, which increased the cost of procuring cotton for manufacturers
- It affects the pricing of goods: High cotton prices often translate to high production costs, and it becomes difficult for businesses in the textile industry to provide competitive prices
- It impacts profitability: For MSME players who are working on tight margins, a small reduction in raw material cost can improve profitability and cash flow
- It affects the export competitiveness: Lower input costs could help the textile industry in India better compete against countries with easier access to duty-free cotton imports
- It provides sourcing flexibility: With the duty removed temporarily, manufacturers can explore multiple sourcing options and reduce their dependence on domestic supply during periods of shortage
How Will Textile MSMEs Benefit?
Abolition of cotton import duty could yield a number of advantages to the MSMEs in the textile sector. The lower input costs and better access to raw materials have enabled small businesses to better mitigate costs and stay competitive in a fast-changing market.
Lower Raw Material Costs
For companies in the textile sector, cotton is one of the biggest cost components. With the temporary removal of the import duty, MSMEs may be able to procure cotton at lower prices, which will help them reduce the cost of production and increase profit margins.
Better Cotton Availability
Duty exemption can increase access to quality cotton, especially where local supplies are limited. This will assist manufacturers in keeping their production line moving and getting customer orders out on time.
Improved Export Competitiveness
India has a strong base in the textile manufacturing industry and is competing with countries like Bangladesh, Vietnam and China in the world markets. This will help Indian manufacturers reduce the cost of raw materials, price their products more competitively and increase their export potential.
Greater Flexibility for MSMEs
Many textile MSMEs operate with limited working capital. With the cheaper raw material costs, the firms have more space to invest in technology, enhance their productive capacity, hire skilled labour, and execute bigger domestic and export orders.
Will the Textile Sector See Immediate Growth?
The abolition of an 11% import duty on cotton will give much-needed relief to the textile sector, but not immediate growth. Lower raw material costs can boost business profitability, but the long-term impact hinges on a number of other factors.
Some of the key factors that will influence the growth of the textile industry in India include:
- Global demand for textiles and apparel: Strong demand from the international markets can help to boost exports and increase production
- Domestic cotton production: A stable supply of cotton within India is important for maintaining competitive prices and uninterrupted manufacturing
- International cotton prices: Global price fluctuations can affect the cost benefits of the import duty exemption
- Exchange rate movements: Changes in currency exchange rates can influence export earnings and import costs
- Export orders from major markets: Orders from key markets, including the US and Europe, will continue to play a key role in shaping the future of the textile sector
However, industry experts believe that the move could provide a positive impetus to the MSME-led textile industry by easing cost pressures and making it more competitive at a time when global competition is intensifying.
Could There be Any Challenges?
While the removal of the cotton import duty is expected to benefit the textile industry, a few challenges remain.
Impact on Cotton Farmers
Lower imports of cotton could depress domestic cotton prices and farmers’ income. But the government has said the exemption is temporary and is meant to balance the interests of farmers and manufacturers.
Temporary Policy
The duty exemption is valid only until 31 October 2026, and the policy could change in the future. Businesses will face higher procurement costs.
Global Price Volatility
International cotton prices can be affected by weather, trade policies, and global events, making it difficult for MSMEs to plan costs.
The decision provides some short-term relief to the textile sector, but companies will have to brace themselves for market and policy uncertainties in the months ahead.
What Does This Mean for the Future of the Textile Industry in India?
Removing the duty on cotton imports signals that the government is serious about strengthening India’s textile industry and making it more competitive on the world stage. The textile industry is one of the country’s largest employment and export sectors and is poised to benefit from policies that promote raw material availability, modernisation and exports.
With improvements in technology, infrastructure and availability of credit, the textile sector can create new growth paths for the MSMEs, stimulate the exports to a further level, and raise the stature of India in the global textile scenario. Future prospects will be determined by market circumstances and future policy measures; nonetheless, the present endeavour marks a step forward in the direction of creating a sustainable and more competitive textile sector.
Read More: $174 Billion Indian Textile Industry at Risk: What It Means for Small Business Owners
What Lies Ahead for Textile MSMEs?
The removal of the 11% cotton import duty is more than just a policy change. For many businesses in the textile industry, it represents an opportunity to manage costs better, improve competitiveness, and explore new markets.
At Lendingkart, we understand that textile businesses often have to navigate changing raw material prices, fluctuating demand, and working capital challenges. That’s why we strive to make business financing simpler and more transparent, helping MSMEs access timely funds for inventory management, raw material purchases, operational expenses, and future growth. As businesses adapt to policy changes and market shifts, we aim to support entrepreneurs in building stronger and more resilient enterprises.
FAQs
- Why did the government remove the 11% cotton import duty?
The government temporarily removed the 11% cotton import duty to improve cotton availability, reduce input costs for manufacturers, and support the competitiveness of the textile industry and MSMEs.
- How long will the cotton import duty exemption remain in effect?
The exemption is currently valid from 1 June 2026 to 31 October 2026, according to the Ministry of Textiles.
- How will textile MSMEs benefit from the duty removal?
Textile MSMEs may benefit through lower raw material costs, improved cotton availability, better profit margins, and enhanced export competitiveness.
- Will cotton prices become cheaper after the 11% import duty removal?
The exemption may help moderate cotton prices, but actual prices will depend on domestic production, global demand, and international market conditions.
- Is the textile industry important for India’s economy?
Yes, the textile industry in India is one of the country’s largest employment generators and contributes significantly to exports, manufacturing output, and MSME growth.
- Will the textile sector continue to grow in India?
The textile sector has strong long-term growth potential, supported by government initiatives, increasing exports, technology adoption, and a large domestic market.
- Can textile MSMEs in India benefit from the cotton import duty exemption?
Yes, textile MSMEs in India that rely on cotton as a raw material may benefit from lower procurement costs, improved cotton availability, and better export competitiveness during the exemption period.
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