India is the worlds second-largest producer of cotton and a net exporter, thanks to decade-old motivational efforts under the cotton technology missions, the introduction of high-yielding hybrid seeds, and the arrival of the ball worm-resistant Bt cotton.
Cottons removal from the Essential Commodities Act opened the door for international traders and exports in December 2006, ushering in the mills travails, says SIMA chairman J Thulasidharan: The multinational cotton traders, who had already established themselves in various other cotton growing, under-developed countries in Africa, have intruded into the Indian markets and shattered the cotton trading economy in the country. Indian textile mills that were struggling for working capital funds became helpless and had to pay 30-50% higher price for the Indian cotton. Though India could continue to produce a record crop for almost five years and also performed very well for the first three years due to stable cotton prices, in the last two years the abnormal prices of cotton made the textile industry suffer.
The mills approached the government with supplications for curbing the trade. Globalisation and liberalisation made control impossible. Removal of duty restrictions eliminated all controls on cotton importation, but to the mills chagrin and producers delight, the minimum support price for cotton was raised 40%.
In 2008-09, with Indian cotton production around 300 lakh bales, there was a surplus and international traders were active in the market. The Cotton Corporation of India and NAFED that had purchased cotton from farmers at MSP offered incentives to traders for the bulk purchase of two lakh bales and more, and traders benefited Rs 1,000 crore at the cost of the mills and farmers because of the 5% export incentive, accuses Thulasidharan.
The mills claim signs of similar exploitation are already visible for the 2009-10 cotton season, which began in October, though cotton crop estimates are lower and rains have affected the quality of the cotton coming to the market and of the standing crop. The Cotton Advisory Board has rationalised crop estimates for the 2009-10 season to 295 lakh bales from the earlier 305 lakh bales, and producing centres are reporting crop damage and adverse impact on cotton quality. At the same time, demand from the spinning mills is rising and prices of much sought-after varieties like DCH 32 (extra long staple) soared to an all-time high of Rs 38,000 to 40,000 a candy. According to data from the Cotton Corporation of India, cotton arrivals up to November 14, 2009, were 38 lakh bales against 36.50 lakh bales in the previous season. Exports registered with the Textile Commissioner up to November 16, 2009, are 17.99 lakh bales.
These factors have triggered speculative trends, sending prices beyond affordable and viable levels, mill sources say.
In response, mills and knitwear manufacturers are reiterating their call for a total export ban so that the revving Indian textile industry is not entirely deprived of good quality cotton produced in the country.
Thulasidharan and TEA chairman A Sakthivel fear traders might export all good quality cotton to Indian textile competitors China, Pakistan, Bangladesh forcing Indian mills to buy or import Indian cotton from international traders at very high prices. As a result, Indian textiles would be uncompetitive on the world market, despite coming from a country that produces some of the worlds best cotton.
The mills anticipate a production of around 260 lakh bales, much lower than CABs projected 295 lakh bales, and expect only 150-160 lakh bales of superior quality, breeding fears of losing out to global competition.However, according to CAIs president Dhiren N Sheth, the current cotton season should have a comfortable position of availability for the domestic and export markets. He says, Any move to ban export of cotton would bring the country back to the pre-liberalisation era and affect the interest of the nation in general and that of the Indian farmer in particular. While the Indian farmer has the protection of a guaranteed MSP, this should not be the reason to prevent him from realising a value for his produce which is equal to his counterpart in the US, China, Uzbekistan or several African nations.
CAI estimates a crop of 305 lakh bales and imports of 7 lakh bales in the 2009-10 season. Despite exports near 70 lakh bales and domestic consumption of 240 lakh bales, the season will end with a closing stock of around 73.50 lakh bales, enough for 3.5 months of consumption.
The recent local price rise is explained as a reaction to high prices in the international markets, which have gone up by around 15 % in the last one month. Indian prices rose less than 10% in that time.
Sheth also warns against causing panic in the marketand thus higher priceswith unreasonably pessimistic crop estimates in a season of record cotton acreage (100 lakh hectares).
CAI contends that Indian mills get cotton cheaper than most of their international counterparts and can import cotton without restrictions or import duty, a benefit not extended to their competitorslike China, where mills face quota restrictions, duties, and local taxes.
Sheth objects to the spinning industrys calls for export restrictions on cotton surplus, claiming the industrys capacity to process all of the countrys raw cotton production is inadequate. Such a step, he insists, would lead to the Indian farmer subsidising the Indian spinner.