Latest quotations are at or around the minimum support levels in a few varieties like J-34 and only marginally above such levels in the case of many other varieties. The Cotton Corporation of India (CCI) has thus been forced to intervene to improve the market sentiments.

A related development is that cotton prices in the international marketshave already shown a steady decline due to the mismatch between supply and demand. Even major suppliers of extra long staple (ELS) cotton, like Egypt, has reduced the export prices significantly. Pakistan, which is a major producer of medium and superior medium staple cotton is offering its cotton at very low prices in the international markets.

As cotton imports are permitted under open general license (OGL), mills in India are expectedly tempted to go in for sizable imports. Even with the present import duty of 5.5 per cent, they find clean cotton cost of foreign growths lower compared to that of domestic cotton. Also, foreign cotton have a reputation of better quality uniformity and grade, especially in regard to contamination and trash.

The current situation is thus full of forebodings for the domestic producers. With a relatively low average yield level and low unit prices, farmers' income may go down steeply. In all likelihood, they may curtail the area under cotton during the next season and switchover to more remunerative crops, leading once again to a situation of cotton shortage and high prices.

Another dimension is added to this situation because of the state intervention. If prices continue to hover at or around support levels, CCI will be obliged to purchase large quantities which would mean bottling up of huge funds. Since interest rates are relatively higher in the country, this will make Indian cotton even dearer compared to foreign cotton or the government will run into sizable losses.