In a move signaling a potential thaw in strained trade relations with the United States, the Indian government has eliminated the customs duty and agriculture cess on cotton imports. This decision, made on Monday, August 18, 2025, is viewed by industry experts as a way to ease tensions and foster renewed engagement between the two nations.

The Ministry of Finance, through the Central Board of Indirect Taxes and Customs (CBIC), announced that all raw cotton imports under heading 5201 would be exempt from duties between August 19 and September 30. Before this exemption, cotton imports into India were subject to a combined duty of approximately 11%.

This decision is expected to benefit American exporters, who have been advocating for easier access to the Indian market following Washington's increase of tariffs on Indian products earlier in the year. The move follows months of negotiations between the two countries, during which India has maintained its stance on sensitive sectors like agriculture and dairy. By providing temporary relief on cotton, New Delhi is demonstrating flexibility without compromising its core principles.

The removal of the import duty on cotton has been a long-standing request from industry bodies like the Confederation of Indian Textile Industry (CITI). CITI Secretary General Chandrima Chatterjee stated that the organization has been requesting the removal of the import duty on cotton to help align domestic cotton prices with international prices.

The move is also considered in light of India's domestic supply needs. The availability of cotton in the domestic market has been limited, with industry bodies raising concerns about the potential for higher yarn prices and increased cost pressures in the textile industry. By allowing duty-free imports, the government aims to stabilize raw material prices before the festival season, when demand for clothing typically rises.

For the United States, this exemption is significant. With China imposing additional duties on American cotton, India has emerged as a promising alternative market. Industry leaders believe that removing the duty could help rebuild some of the trust that has been lost recently.

Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI), noted that this is a carefully considered gesture that addresses U.S. concerns while protecting domestic sensitivities. Srivastava added that the short exemption window allows the government to maintain leverage in ongoing negotiations.

The textile industry has suggested that removing the 11% duty on raw cotton imports could be used as a negotiating tool to secure favorable terms for the country's textile and garment sectors during trade discussions with the U.S.

However, some concerns have been raised about the potential impact on domestic cotton farmers. It is argued that cheaper imported cotton could lead to a drop in domestic prices, which would affect farmers and the Cotton Corporation of India (CCI), the government agency that buys cotton at the Minimum Support Price (MSP).