Although the fine print of the agreement is still pending, it is expected to be signed by the end of March. According to four industry sources close to the development, the minister informed industry leaders at a meeting at Vanijya Bhawan late in the evening that the country may also explore a similar arrangement as Bangladesh and that the industry has no reason to worry.
“As per the Trump administration’s initial tariff guidelines, any country that uses US raw materials amounting to at least 20 per cent of the import value and converts them into finished goods can export these finished goods to the US at zero duty. So, access to the US market is not exclusive to Bangladesh. The minister has now assured us that India will also consider a similar deal,” said a source who attended the meeting.
“This means there is no need to worry about losing our market advantage over rivals Bangladesh in the US, as well as losing cotton exports to Bangladesh,” said another source.
Cotton export dynamics
There was speculation that this move could also affect Indian cotton exports to Bangladesh. Bangladesh imports about 8.5 million bales of cotton annually to serve nearly 500 spinning mills. Cotton production comes mainly from Brazil, India and Africa, while there have been no significant imports from the United States in recent years.
Despite this capacity, Bangladesh’s domestic production of cotton yarn is insufficient to meet the needs of the garment industry. As a result, Bangladesh continues to import significant quantities of yarn and fabrics while maintaining a strong and growing presence in man-made fiber (MMF) production. India exports an average of about 1.2 million bales of cotton to Bangladesh every year.
India produces about 37 million bales of cotton annually. However, due to strong domestic consumption, commitments to export cotton, yarn and fabrics and structural demand from the textile value chain, the country also imports cotton. India imports nearly 5 million bales annually to bridge the gap between supply and demand.
“This clearly shows that India does not have a surplus of cotton even at current production levels. Based on current and forecast fundamentals, India is not lagging behind. On the contrary, with the FTAs signed with the UK and EU, and an upcoming US trade deal, India is poised for a significant increase in textile and apparel exports,” an industry source said.
As these FTAs come into effect, capacity expansion in spinning, weaving, processing and garment-making is expected to accelerate. This will lead to higher domestic cotton consumption, which will further reduce supply.
“Given the absence of a commensurate increase in cotton productivity or cotton area in the near term, India will likely be forced to increase, not reduce, cotton imports. Therefore, Indian cotton farmers are not threatened. Instead, the evolving trade landscape presents a strong opportunity to expand cotton growing areas and improve agricultural achievements,” the source added.
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