Textiles and garment firms have approached the government to ban the futures trading of cotton, as they allege it’s adding to market speculations and further driving up prices of the fibre.
Reiterating their demand for prohibiting cotton exports immediately to tame the soaring prices, some players are also pushing for a long-term raw material strategy for the sector under which they want the government to impose an export duty on the fibre to keep local supplies steady.
Similarly, they have also suggested that the government follow the Chinese model and set up, through the state-run Cotton Corporation of India (CCI), a strategic reserve of about 10 million bales. This will enable it to resort to meaningful intervention in the market whenever there is a spike in raw material prices. These are part of a raft of suggestions submitted by these players to address the issue of raw material shortage in the country, official and industry sources told FE.
“Textiles minister Piyush Goyal is expected to take a decision, after considering these and other possible options, once he is back from Davos later this week,” said one of the sources.
Domestic cotton prices have more than doubled to breach Rs 1,00,000-mark per candy of 356 kg in the past one year. Consequently, cotton yarn prices, too, have jumped substantially.
In December 2021, stock and commodity markets regulator Sebi had suspended futures and options trading for one year in seven farm commodities, such as chana, mustard seed, crude palm oil, moong, paddy (Basmati), wheat and soyabean and its derivatives. However, trading in cotton wasn’t curbed.
“We have requested the government to ban futures trading of cotton. Similarly, the government should have a long-term strategy to ensure adequate availability of cotton to consuming industries, which are making value addition here and creating jobs, instead of allowing traders to have a free run,” said Raja Shanmugham, president of the Tirupur Exporters Association that represents the country’s largest garment cluster.
In a letter to Goyal, Apparel Export Promotion Council chairman Narendra Goenka pointed out that the price of cotton yarn has jumped by about 20% from Rs 376 per kg in March to Rs 446 in May.
India is already losing out to competitors like Bangladesh, due to their duty-free access to markets like the EU. “This continuous price increase will further make us uncompetitive,” Goenka said.
Making a case for promoting exports of finished products, Goenka said while the outbound shipment of raw cotton fetches about Rs 275 per kg, when converted to yarn, it touches Rs 400 a kilo. In contrast, a value-added product like garment, when exported, could fetch between Rs 1,000 to Rs 1,200 rupee a kilo.
Goenka added that, “We have suggested to the government quantitative restriction on export of raw cotton and cotton yarn, reducing the export benefit on export of cotton and cotton yarn along with declaring cotton as essential commodity (which will make it easy for the government to regulate its supply).”
According to T Rajkumar, director of Sakthi Group and chairman of the Confederation of Indian Textile Industry, the imposition of curbs won’t hurt farmers.
Sanjay Jain, former CITI chairman, said India cotton prices have moved up at a much faster pace than the Chinese cotton, further eroding India’s competitiveness vis-à-vis the world’s largest textiles and garment player.