1. Cotton Association tells Centre to snub buffer stock move, says it will distort market

Cotton Association tells Centre to snub buffer stock move, says it will distort market

The Cotton Association of India (CAI) has said that it is totally opposed to the creation of any buffer stock and has urged the Centre not to go ahead with any creation of such a stock.

By: | Pune | Published: October 27, 2016 6:07 AM

The Cotton Association of India (CAI) has said that it is totally opposed to the creation of any buffer stock and has urged the Centre not to go ahead with any creation of such a stock. If implemented, this will take the country back to the pre-liberalised era of the late 1980s and early 1990s, the association has said.

“We have learnt from newspaper reports that the textile industry has urged the government to direct Cotton Corporation of India (CCI) to procure 70 to 80 lakh bales cotton in the peak season and retain it as buffer stock and sell this quantity only to actual users during May-September. The CAI is totally opposed to creation of any such buffer stock,” Dhiren Seth, president, CAI said.

According to him, the idea of creating a buffer stock for exclusive use by a certain sector is wrong, as it will not only distort the market but will also unsettle other sectors of the cotton value chain. Apart from this, the creation of a buffer stock system would require a total investment of about R16,000 crore for procuring the desired 80 lakh bales of cotton, which in turn will involve a total recurring expenditure of hundreds of crores a year by way of carrying cost including interest and warehousing cost, he pointed out. In addition to this, CCI will have to bear the loss that may arise due to a fluctuation in prices.

Seth pointed out the example of China, which had implemented a similar reserve policy and created a huge stockpile of cotton and had suffered enormously, eventually deciding to liquidate their stock. Their cotton economy is still reeling under the debacle that the cotton reserve caused to it. “One must also remember that China is a huge cotton-deficit country while India is a huge cotton-surplus country, and cotton is available to Indian mills at their doorstep. This is another good reason why India should not follow suit and create any buffer stock. Moreover, India should also learn a lesson from the mistake that China made by creating a buffer stock, which created inefficiencies in their system, for which China continues to pay a heavy price even now,” he said.

If the problem is non-availability of funds with the textile mills to buy and stock cotton, it would be appropriate to address this through banking channels, the Reserve Bank of India and the finance ministry, rather than creating a buffer stock scheme, Seth said. A similar proposal, which was mooted earlier for creating a strategic cotton reserve for exclusive sales to mills, was rejected by the government. “In view of this situation, we urge the government to not go ahead with creation of the buffer stock system in cotton.”

The CCI has opened around 120 purchase centres across the country even as it has no plans at the moment to procure the fibre, senior officials of CCI said. Cotton prices are currently ruling at R5,000-5,500 per quintal while the MSP is R4,160 per quintal. Cotton arrivals are expected to peak during November-December and top officials of the corporation have earlier stated that rates are likely to come down then. CCI will then assess the situation and, accordingly, may go in for commercial operations. According to market sources, the central ministry has also indicated that the government would intervene if prices fall below the MSP at any point of time.

The Cotton Advisory Board, at its meeting held in Mumbai, has estimated that the domestic cotton production could reach 351 lakh bales bales of 170 kg each for the cotton year 2016-17. The country’s cotton production is expected to increase by 3.8% in 2016-17 from a year ago, owing to a sharp growth in yield following a good monsoon.The cotton year starts on October 1 every year. The output of cotton was 338 lakh bales last year.

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