The central government on Monday banned cotton export, amid fear its prices would shoot up on account of declining production in the current season.
Looking to the damage caused to the standing crop due to high temperature, moisture stress and absence of winter rain/dew, the Cotton Advisory Board (CAB) had recently revised the cotton crop estimate to 34.5 million bales (a bale is 170 kg) against the earlier figure of 35.6 million for cotton season 2011-12.
"Export of cotton has been prohibited till further orders," the Directorate General of Foreign Trade (DGFT) said in a notification. It said export against registration certificates already issued would not be allowed either.
Soon after the decision was made public, cotton prices started falling. On the Multi Commodity Exchange, it closed four per cent lower, at Rs 16,470 per bale. US cotton futures for delivery in May also soared by a little over four per cent, to a high of 92.23 US cents a pound, while Shanghai futures rose a little above one per cent on the news. China, the world’s biggest user of cotton, is India’s largest export market.
The government's decision was sharply criticised by the industry and cotton growers. They termed it "unwarranted and most regrettable" and “anti-farmer”. The notification comes after nearly 9.4 million bales have been exported against an estimated surplus of 8.4 million bales, say industry sources. Besides, exporters had already registered another 2.6 million bales for exports as per data from the textile ministry.
The ministry explained the rationale behind the ban in a note issued today. It said higher-than-anticipated exports in cotton season 2010-11 reduced the expected carryover of stock for the season 2011-12 from 4.83 million (mn) bales estimated by the CAB to 3.3 mn bales. Availability declined to less than the 2009-10 production levels, reducing the carry forward figure to below the advisable inventory level.
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Dhiren Sheth, president, Cotton Association of India, told Business Standard: "Today's decision will damage India's reputation as a reliable supplier in the global market. Farmers will bear the brunt . The price will achieve the minimum support price (MSP) level soon, beginning Andhra Pradesh. Decision is a dampener for farmers who won’t grow cotton next year."
Sheth appealed to the government to reconsider. The government had increased the MSP of medium staple cotton to Rs 2,800 a quintal and for long staple to Rs 3,300 last year.
A Cotton Corporation of India official said, "We will intervene if the cotton prices reach the MSP level to support the farmers." However, he declined to comment on the impact on the sector due to the ban.
Sheth's views were shared by Jaggubhai Shah, chairman and managing director of Gill & Co, an exporter. "Immediately after the government's decision, New York futures rose by 400 points. Today's decision will benefit Africa and America in a big way, while India's image will take a serious beating. Buyers in the international market will lose faith in India as a honourable country which fulfills its commitment."
According to Shah, the decision comes at a time when most mills, especially in Andhra Pradesh and Tamil Nadu, have been either closed or are running below capacity due to severe power shortage and financial constraints.
Cotton growers marketing federations said the decision was pro-mill and would seriously affect farmers. N Hirani, chairman of the Maharashtra Cotton Growers Marketing Federation,said, "The government must come to the rescue of farmers,as done by China. The government must start direct procurement through Cotton Corporation of India, Nafed and federations like ours, by paying Rs 4,000 per quintal to farmers."