For the new cotton season beginning October 1, 2010, the government has fixed a export quota of 55 lakh bales alongside continuing with the practice of mandatory registration of all cotton exports by the textiles commissioner. The steps come after a high-level meeting of all senior officers from the concerned ministries and departments, and as per the official statement is meant to safeguard the interests of farmers and also of the exporting community.
If capping exports is meant to control domestic cotton prices, then it?s a disservice to farmers who, year after year, have been giving us bumper harvest, making India one of the leading producers of medium to high quality cotton in the world. Even this year, India exported 83 lakh bales of cotton?the production was 295 lakh bales. So, capping exports at 55 lakh bales when production is expected to rise to 325 lakh bales seems slightly out of place.
Although the government has indicated that a through review of its decision would be done around November 15, when the entire picture on production and exportable surplus becomes clear, the fear is the country could loose valuable export market to competitors by then. The ban was imposed in April to check rising domestic prices that had moved up by almost 54% in the last one year. While both textile makers and farmers have their own argument for and against the banning or allowing cotton exports, one thing should be looked into detail: how much is domestic demand contributing to rising prices?
Estimates show that domestic demand is rising by 3-5% annually, putting an increasing pressure on prices, more so when production has hovered between 290 lakh to 320 lakh bales over the last few years. Albeit, unless production rises substantially, exportable surplus will continue to shrink, but that does not merit interrupting with normal market operations. When millers have the option of importing as much cotton as they want without any duty, capping exports or even imposing any prohibitive duty is misplaced. The ideal situation will be to allow market dynamics to function and whosoever pays more should get the commodity, be it textile markers or exporters. It should also be ensured that benefit of high prices should pass on to farmers and not get stuck with middlemen and unscrupulous traders.
sanjeeb.mukherjee@ expressindia.com