The Indian government may cut the import tax on cotton, which is one of the policies for solving the fiber cost of local garment factories. The policy will additionally allow cotton imports from Africa to compete with Indian cotton at zero tariff.

The Indian government is preparing to cut the import tax on cotton from 10% to 5% and cancel the special additional tariff of 4.5%. The Indian government may also cancel export incentives, such as 1% tax rebate for packaging materials. The Indian government will allow zero tariff cotton imports from African underdeveloped countries. The list of underdeveloped countries will be extended to other regions.

The Indian government's move will increase direct competition at a time when Indian cotton farmers celebrate high cotton production. The special international demand in 2008 brought unprecedented examples to cotton farmers, despite record cotton production. At present, India has become a destination that can provide high-quality cotton. This season, the grams of cotton exported reached 10 million bales.

But the unprecedented rise in cotton prices has angered textile factories, which are under pressure from low profits and the appreciation of the Indian rupee. Textile factories believe that tariff reduction will bring psychological pressure on the cotton market and prevent speculative hoarding, especially by exporters. An official of the East India Cotton Association said that we believe that foreign trade companies can control 2.5 million bales of cotton. This destroyed the market. In addition, if the price is reasonable, textile factories can import cotton. African cotton is 4 cents higher than Indian cotton. In addition, India has a tariff of 8 cents. If the tariff is zero, African cotton will be more expensive than Indian cotton, said a trade organization in Mumbai. But India itself is one of the cheapest and largest cotton producers in the world. India finds it more difficult to choose the source.

Moreover, there is no indication that India will soon run out of cotton.

India has produced at least 31 million bales of cotton. India's factories consumed 21.5 million bales of cotton, and the cotton carried forward last season reached 2.5 million bales. This leaves India with almost 10 million bales of cotton surplus. Because India's cotton exports cannot exceed 6.5 million bales, there is almost no reason to panic. By cutting import taxes, the Indian government will reverse the price signal. If India's cotton production continues to grow, within two years, India will become the world's largest cotton producer.

Larger ginners and exporters said Indian textile mills were in distress because they could not depress cotton prices as they hoped.

USDA's 2007-08 cotton season forecast reduced cotton production, consumption and trade in the world market. Cotton production in China, Brazil and Turkey will decline, but that in Pakistan will rise. The world's cotton consumption may decline, which is mainly due to the decline of cotton consumption in China, India and Turkey. This is due to the expected weak textile demand and the relatively high cotton price compared with polyester price.
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