Even exports of cotton have shown a drastic decline.
After touching an all-time high, cotton prices have fallen below the minimum support price (MSP) over the past couple of weeks due to declining global consumption and sluggish demand from domestic mills.
The market price of Sankar 6 — the benchmark price — has fallen to Rs 22,000-23,000 per candy from Rs 28,000-29,000 per candy (each candy is 356 kilograms). The MSP of cotton is Rs 24,000 per candy.
However, the rates are still high compared with last year, when they were hovering around Rs 18,000-19,000 per candy.
“Lower demand has pulled down the prices because the mills cannot consume all the cotton due to financial crunch,” said RK Dalmia, chairman, Confederation of Indian Textile Industry (CITI).
The slowdown in the textile sector due to the ongoing global financial turmoil has forced a number of spinning mills to close, which has dampened the demand for cotton in the country. According to industry estimates, 20 per cent of the total spinning capacity has been shut down recently.
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Even exports of cotton have come down. While in the last cotton season (October 2007-September 2008), nearly 10 million bales were exported, this year merely 75,000 bales have been exported. India exports cotton mainly to China, Pakistan and Bangladesh, with China’s share being almost 70 per cent. Demand from China has also reduced, says an industry official.
The decline in cotton prices, however, will not make much difference to the textile mills as global demand for textiles has declined and other input costs like power have increased, according to industry officials.
According to IJ Dhuria, corporate general manager (raw material), Vardhman Textile Group, the mills do not have the money to buy cotton even after the recent reduction in prices.
In such a scenario, the government has to buy at the MSP. The process has already started. “We have already bought 300,000 quintals from the market. International prices may fluctuate in the future as well because the demand for cotton has further decreased globally. If need be, we will buy any quantity of cotton from the farmers in case the price remains below the MSP,” says an official.
Instead of government procuring cotton and stocking it, an ideal solution would be to enable the industry to buy by improving credit facility and other benefits, said Dalmia. He suggested that the government should reduce the interest rate on working capital loan to 7 per cent, which is applicable to other agricultural products.