Raw cotton imports had been allowed duty-free under the open general licence (OGL) till now but in the budget for 1999-2000 presented in parliament, finance minister Yashwant Sinha proposed the five per cent duty plus the surcharge while rationalising the import duty structure.

``Imposition of import duty of 5.5 per cent on raw cotton will escalate cost of production and to that extent textile products will be rendered uncompetitive,'' Indian Cotton Mills Federation (ICMF) chairman Sudhir Thackersey said in a letter to Sinha.

Although the policy of allowing duty-free import of cotton under OGL had been in existence for several years, mills had resorted to import raw cotton only during crisis when availability was inadequate, he said.

Industry sources said the levy comesat a time when mills were finding it hard to get quality cotton despite a rise in production this season (October 1998-September 1999).

The cotton advisory board (CAB) had last month revised the estimates of cotton production to around 160 lakh bales (of 170 kg) against earlier projection of 170 lakh bales for the season.

The sources said in the ordinary course, the duty would not have much of an effect as export-oriented mills usually imported it under advance (import) licence against shipments of yarn.

These imports were made duty free against advance licence, they said. However, in view of shortage of quality cotton, the mills had contracted five to 6.5 lakh bales from Africa and Australia this season.

Though cotton imports was expected to decline this season against four lakh bales imported last year, lack of quality cotton had led to the mills looking for imports to fulfill their demand. The sources said at least five lakh bales could be imported this season.

Besides being contamination free,imported cotton are currently ruling lower than domestic prices. Industry sources said coupled with the hike in excise duty on cotton yarn, the duty on cotton imports was another move against cotton-based textiles sector.

Government seemed to be interested only in the man-made textiles sector, they charged. Apart from slapping the import duty, government has also ruled out review of its decision to allow cotton exports.

Recently in a reply to Tamil Nadu chief minister M Karunanidhi's letter seeking ban on cotton exports, textile minister Kashiram Rana had stated that exports had been allowed taking into consideration all aspects.