 "Demonetisation hits business: Daily cotton arrivals fall by 50%")
Demonetisation of high-value currency notes by the government has created a cash shortage that is affecting the cotton trade.
With farmers seeking to sell their produce only in cash, the scarcity of notes has led to daily cotton arrivals declining by almost 50 per cent to about 60,000 bales (170 kg) from 120,000 bales soon after the announcement.
“Farmers usually prefer cash for their produce and are not familiar with other forms of payments. Hence, due to demonetisation, traders and ginners are unable to make payments to farmers in hard cash,” said Bhagwan Bansal, president of the Punjab Cotton Ginners Association. Farmers were not bringing raw cotton for sale to the markets, he added.
This has also impacted the price of cotton, which gained almost 5 per cent to Rs 39,500 per candy (355 kg) in the last two days. Demand from yarn mills has also declined by 30 per cent. According to the cotton industry, it will take at least four weeks for the situation to return to normal.
Mill demand was picking up after a low cotton production in 2015-16, however, shortage of cash has now affected trade.
K N Vishwanathan, vice- president of the Indian Cotton Federation, said, “In the present scenario, doing business is quite tough so most buyers are avoiding large purchases, which has led to a fall in demand from yarn mills by almost 30 per cent. On the other hand, demand is higher than supply and cotton prices have gone up in the last two days and may continue to stay high till the situation normalises.”
Yet, the cotton industry has welcomed the government’s move to demonetise currency notes of Rs 500 and Rs 1,000.
Bansal said, "It is a good decision and farmers should learn to adopt other payment options. However, the government should extend the cash withdrawal limit to Rs 2 lakh to make things more convenient for the industry as a whole."