Accusing the international traders of hoarding cotton stocks leading to an unprecedented increase in prices recently, the textile industry has sought abolition of import duty on cotton.
A delegation of textile industry leaders met textile minister Shanker Singh Vaghela on Wednesday, demanding the withdrawal of 14.7% import duty and suspension of export till December 31, when the new crop comes.
Vaghela has agreed to lead the delegation to Prime Minister and finance minister and asked for the favour.
?I will lead the delegation for a meeting with the Prime Minister and the finance minister. I have asked the textile secretary to prepare a note on the pros and cons of abolition of duty and submit the report within four days,? Vaghela said on Thursday.
If accepted, the duty cut will help the industry source cheaper cotton from other countries at affordable prices. In a letter written to Prime Minister, Manmohan Singh, the representative body of Industry Confederation of Indian Textile Industry (CITI) has said prices of cotton have risen by 35% as compared to the same period last year, despite achieving a record production in the country.
The advantage of the improved cotton economy is accruing to our competitors, rather than to our own textile industry or farmers. Of the total exports of 85 lakh bales, 75% is sent to China alone, followed by Pakistan.
?A steep hike in prices has occurred after the cotton stocks were sold to traders and large MNC operating in international markets, who have become active in domestic market,? the letter said. ?This has been done on the strength of finances available to them at LIBOR. These traders have been hoarding and cornering cotton stocks in order to increase prices,? it states.
Shankar6, the most popular variety of Indian cotton, which was available in June 2007 at a price of Rs 21,000 candy, is being sold at over Rs 28,500 a candy?an increase of over 35%.
This illustrates the extent of price increase that his vital raw material has registered this year. This demonstrates that uncontrolled export is primarily responsible for the present crisis. Currently, traders are not interested to sell stocks to out mills as they anticipate continued increase in prices because of depleting availability.
The cotton yield has improved considerably during 2003-04 to 2007-08 from 399kg to 553 kg respectively due to implementation of Technology Mission on Cotton and the government wants farmers as well as industry should reap the benefit, the minister added.
Cotton dynamics says that a reasonable ending stock of around 60 lakh bales is necessary to ensure that cotton prices remain competitive. The ending stock this year has declined to 43 lakh bales, basically because exports have increased to 85 lakh bales from 58 lakh bales last year.
The figure of 85 lakh bales is the export estimated by the Cotton Advisory board, but cotton traders expect exports to touch 95 lakh bales. Some even think that actual exports may exceed 100 lakh bales.
A reasonable stock-to-use ratio is another important factor influencing cotton prices.
As per the International Cotton Advisory Committee, stock-to-use ration in most countries is over 40% as against 18%.
The advantages of processing cotton within the country in the various stages of the textile value chain, in terms of increasing industrial production and generating employment are obvious.
Restricting large exports is the only way of ensuring that cotton remains available domestically. To discuss the ongoing cotton crisis and possible solutions, CITI had organised a meeting in Mumbai. Various industry associations and export promotion councils attended it.