The Indian Textiles Ministry is set to address the long-standing tax disparity between cotton and man-made fibers (MMF) by presenting the issue to the Cabinet for discussion as part of a broader national fiber policy initiative. According to official sources, the ministry has already circulated a draft proposal to various departments, including the Ministry of Agriculture, the Ministry of Chemicals & Petrochemicals, and the Ministry of Commerce, seeking their feedback before finalizing the policy.
The proposed framework highlights that while taxes on synthetic fibers have been significantly reduced in recent years, the current tax burden on man-made fibers remains disproportionately high. Specifically, cotton is currently exempt from consumption tax, whereas man-made fibers are subject to an 8% consumption tax. Additionally, man-made fiber textiles face an 8% central value-added tax (CST), compared to a 4% CST applied to cotton-based textiles.
Reducing these taxes could significantly boost the demand for man-made fiber products, making them more competitive in the domestic market. The draft also emphasizes that future textile demand is expected to shift increasingly toward man-made and artificial fibers. Therefore, India must prioritize policies that encourage both the production and consumption of these materials to remain globally competitive.
Currently, man-made fibers account for 41% of India's domestic fiber consumption, with cotton holding the majority at 51%. However, globally, the ratio stands at 60% man-made fibers versus 40% cotton, indicating a growing trend that India should align with in the coming years.
By addressing this tax imbalance, the government aims to create a more balanced and sustainable textile industry that supports both traditional and modern fiber sectors. This move could also help reduce reliance on cotton, which is vulnerable to climate-related fluctuations, and promote a more diversified and resilient manufacturing base.
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