Cotton procurement scheme to cost state dear

The cash-strapped Maharashtra government is in deep trouble with another of its populist policy, the cotton procurement scheme run by the Maharashtra Cooperative Cotton Growers' Marketing Federation.

The federation has registered an all-time high purchase of more than 200 lakh quintals of cotton, adding a staggering Rs 2,000 crore to its accumulated losses of Rs 3,500 crore.

The chairman of the federation, N P Hirani said the purchase of 200 lakh quintals of cotton would take the state's cotton bill to Rs 3,600 crore. This amount does not include the advance bonus payment committed by the federation to cotton growers, which would be released in two instalments in June and October 2005.

By February 15 evening, the federation had purchased around 178.11 lakh quintals of cotton. This season's record purchase of cotton has pushed the federation deeper into losses.

Apart from the bill of Rs 3,600 crore in the form of minimum support price fixed by the Centre, the federation will also have to bear an expenditure of Rs 726 crore for storage, ginning, pressing and processing of cotton, Hirani said.

The federation is expected to receive Rs 2,600 crore through sale of cotton bales (at an estimated Rs 6,500 per bale), Hirani disclosed.

He said around Rs 770 crore were estimated to be received from the sale of cotton seeds in the open market. The difference of around Rs 1,000 crore between the receipts and dues would add up to the losses besides payment of Rs 1,000 crore in the form of advance bonus, Hirani admitted.

The federation has disbursed only Rs 751 crore towards cotton purchased till December 12, 2004. It now has three options for raising funds for settling the rest of the dues which come to around Rs 3,900 crore.

The first option is to seek funds directly from the state government, second is to expedite sale of bales and the third is to float bonds to raise money, Hirani said.

The federation's record in selling cotton bales is dismal to say the least. Hirani said only 2.75 lakh bales (around 14 lakh quintals) have been sold till now. This has happened because cheaper cotton is available in the market. Moreover, cotton traders who have procured cotton from farmers are already offering it on credit to textile mills.

Hirani also maintained that the federation estimates that around 40 per cent of cotton purchase done by it was brought in from neighbouring states.