India extends duty-free cotton imports to end of December, waiving 11% duty for two more months

India has extended duty-free cotton imports by two months, to the end of December, keeping its 11% import duty waived to bring down prices for its textile mills, Reuters reported in a story carried by Business Recorder on Saturday. The original duty-free window ran from 1 June to 31 October.

Why India did it

Indian cotton prices usually ease in October as the new crop arrives. This year they stayed firm, on fears that patchy monsoon rains have cut production. Textile mills asked the government for the extension. India is the world's second-largest cotton producer after China, so a shortfall there moves the whole market.

With the duty gone for two more months, traders expect Indian mills to buy more from the United States, Brazil and Australia, the same suppliers Pakistan's spinners turn to when the local crop falls short.

What it means for Pakistan

Prices as shown on Business Recorder's market ticker.

Pakistan imports a large share of the cotton its mills spin, much of it from the US and Brazil. Extra Indian demand for the same bales can lift international prices and freight, which Pakistani mills pay in dollars. That cost is the difference between a competitive and an uncompetitive yarn order for exporters in Faisalabad and Karachi, whose margins are already thin.

On the other side, India's mills will have cheaper cotton through December, which helps them price yarn and fabric against Pakistan in the markets both sell to, from China to Bangladesh.

For Pakistani growers, firmer world prices are mildly good news, since local phutti rates tend to follow Karachi spot, which tracks New York.

What to watch

• The next crop estimates in India and Pakistan, which will show how short both crops are.
• The rupee: imported cotton costs more when it weakens. Our dollar to rupee page tracks the rate daily, and the currency converter works out what a dollar price means in rupees.