After a commendable export performance of 16.87 lakh bales in 1996-97, exports were down to a mere 3.5 lakh bales in the following year. According to the Indian Cotton Mills' Federation (ICMF), 89 cotton mills have already closed down between April'98 and May'99, and many more may close.

The demand for domestic cotton has also taken a beating following an increase in imports and this has made the going even more difficult for millers.

Speaking to The Financial Express ICMF secretary general, MP Gajaria, said if the government does not take immediate steps like reducing excise and providing adequate finance to the industry, the situation might get out of hand.

In the current year exports so far were only 66,000 bales and Gajaria believes that total exports would not cross 1.5 lakh bales when the cotton year ends this September.

According to ICMFestimates, Indian cotton prices are about 10-15 per cent higher than the international prices. Competition is mostly coming from West Africa, CIS countries and Australia who are offering cotton at very low prices.

A good cotton crop in the US last year also played a role in depressing international prices. Moreover, the change in China's status from a major cotton importer to an exporter also had a bearing on prices.

The second factor which shrunk India's market share is the poor cotton quality which is largely due to low quality seeds and spurious pesticides. Only 32-35 per cent of the total cotton seeds used are certified, said Gajaria.

As two-thirds of cotton production is dependent on rains, there is a need to use pesticides to save the crop from pests which increases with moisture contents. Gajaria said that there is high adulteration in pesticides and usage of such pesticides prevent the desired results. "The government has to take serious steps towards improving the quality of seeds and solve theproblem of spurious pesticides". But more importantly, the government should either remove excise duty on cotton yarn or roll back the 60-per cent jump brought about in the rates in the recent budget, said Kajaria. The excise duty on cotton yarn had recently been increased from 5.75 per cent to 9.20 per cent. "If the excess burden is removed then industry may become viable to some extent."

Bankers attitude towards the industry also needs to be changed, said Kajaria. "Mills today are cash starved because they have to sell on credit. Banks need to take a more sympathetic view of the situation and give loans to units based on their good track record."