Slackening of demand from textile mills has forced the Cotton Corporation of India (CCI) to sell the commodity below purchase price.
Consequently, the corporation is expected to suffer a loss of about Rs 3000 crore during the cotton season?October-September?, a senior official in the textile ministry told FE.
The CCI has, till date, purchased 90 lakh bales (170 kg). Of this, 60.76 lakh bales have been offloaded in the domestic market incurring a loss of about Rs 2,200 crore and if the trend continues, the losses may rise further to Rs 3000 crore, the official added.
The agency had fixed the procurement target at 110 lakh bales at minimum support price (MSP) announced for 2008-09 .
Besides this, it has exported 14,752 bales, and that too, below the floor price.
With the commodity being sold below MSP, CCI and Nafed have been purchasing at Rs 22,500 per candy in crop year 2008-09, despite softening of prices in the international prices.
The CCI is still under pressure to bring prices down to around Rs 20,000 per candy, at par with current international rates.
Presently, the prices of Shankar-6, one of the most popular varieties of the crop in the Indian subcontinent have gone up to Rs 23,500 per candy.
To counter the situation, the government agency, in February, launched a bulk discount scheme to attract bulk purchasers.
Under the scheme, the discounts ranged between Rs 400 to Rs 650 on purchase of 10,000 to 2, 00000 bales, respectively.
When fresh stock arrivals ceased in February-end, the situation aggravated for the domestic textile industry, which is reeling under an unprecedented crisis for over a year. The industry wants prices to be aligned with international prices. International cotton prices, according to the Cotlook index (representative of the price level on the international raw cotton market) is at least Rs 1,000-2,000 lower than that commanded by Shankar-6.
The local textile sector that consumes about 240 lakh bales (170 kg) of cotton annually has been unable to procure cotton at the existing market rates. However, cotton procurement by textile mills in the current crop year has dropped by one-third compared to crop year 2007-08. The commodity that shot up to Rs 30,000 per candy in 2008, now commands a price of Rs 23,500 per candy, expensive by Rs 1,000-2,000 than international prices.
Reacting to the situation, the chairman of the Confederation of Indian Textile Industry (CITI) RK Dalmia said, ?The purpose of MSPs is to increase the revenue of farmers. This objective has been achieved once the cotton is purchased by the procurement agencies at MSPs. By increasing the prices while disposing of procured cotton, the cost of MSP operations is being transferred to the textile industry.
The present situation in our industry is evident from the negative trends for the textile sector in the IIP data, exports and financial results. The crisis-ridden industry is being pushed further into deeper problems by the increasing cotton prices??.