Within days of imposing a hefty Rs 2,500 per tonne export duty on cotton, the government suspended pre-shipment registration of new cotton exports and also of cotton wastes. Ostensibly, both the measures, announced in a span of less than a month, are meant to bring down soaring cotton prices.
Existing contracts, however, might not be impacted as the suspension of registration does not apply to them, but it is a big dampener for fresh exports since sellers would now be wary of entering into any sort of contractual agreements with their regular buyers. And even if they do, the new price would have to be higher since it has to take into account the export duty. In other words, cotton exports, from one of the world?s largest producers, have been stalled for now.
Cotton prices in the domestic markets rose by almost 54% last year, pushing up textile prices by as much as 50%. And it was the group of local textile makers who were demanding restriction on cotton exports, on the grounds that rising raw material cost was hurting their margins. Raw cotton, which was selling at around Rs 22,000 per candy of 356 kg each around October 2009, soared to almost Rs 28,300 per candy in recent weeks. Almost 8 million bales of cotton (1 bale equals 170 kg) have been registered for shipment since October 2009, of which 6.1 million bales have already been shipped.
But is only export demand fuelling the rally in cotton prices? A recent US department of agriculture report said domestic cotton consumption in 2010-11 in India is projected to rise by 4.6% to 20.1 million bales, largely because of a strong demand from the local textile industry. And with production hovering around 29-31 million bales, rising domestic consumption, rather than exports, is putting pressure on prices.
In any case, why should the government listen only to the textile manufacturers? lobby? It is after all in the aam cotton farmer?s interest to get the best price for his produce. Banning exports will harm the farmer constituency the most.
sanjeeb.mukherjee@expressindia.com