Even as the textile industry has asked for administrative measures to control prices of raw cotton, including banning exports, and giving domestic buyers the first right of refusal, the Ministry of Textiles feels that domestic prices cannot remain immune to global rates.
“Considering that there is no import duty now, international cotton prices will end up dictating Indian prices. Industry cannot expect that domestic cotton prices will be much lower than international prices,” said JN Singh, joint secretary, Ministry of Textiles.
In July, the government abolished the 14 per cent import duty on cotton. However, it increased the minimum support price (MSP) of raw cotton for the coming season by up to 47 per cent. The increase invited adverse reactions from Indian textile firms. “Mills in north India have cut their production by 25 per cent since the government hiked the cotton MSP. If the prices of cotton do not go down, textile mills will witness further decline in production, leading to reduced exports from the country,” says Sunil Jain, president, Northern India Textile Mills’ Association (NITMA).
Textile mills in northern India exported products worth around $3 billion in 2007-08, out of the country’s total textile exports of $20.5 billion.
DK Nair, secretary general, Confederation of Indian Textile Industry, said the government would have to buy a major chunk of cotton from the market this year, as Indian textile mills were not in the position to buy cotton at the prevailing market price.
“Cotton exports may be viable now but it is difficult to see it as a sustainable option, in the context of the volatility of international cotton markets,” added Nair.
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However, the government is of the view that with the removal of import duty, Indian farmers are open to international challenges.
Similarly, the industry should also gear itself up to take the challenge head on. “If international cotton prices fall down, then Indian prices will also come down, affecting farmers. Similarly, when international cotton prices are ruling high, I do not think Indian farmers will sell cotton in the domestic or international market at lower rates,” adds Singh.