The increase in the minimum support price (MSP) announced by the government for certain cotton varieties may hurt textile firms and is likely to boost imports of cheaper cotton, a senior industry official said.
The textile ministry had announced a raise of around 40 per cent for certain cotton varieties.
MSP for farmers growing cotton of staple length of 24.5-25.5 mm has been raised to Rs 2,500 from Rs 1,800 a quintal and that of staple length 29.5-30.5 mm has been raised to Rs 3,000 from Rs 2,030 a quintal.
“The increase in MSP became necessary due to increased input cost and an overall rise in cotton prices,” Ministry of Textile Joint Secretary J N Singh said. “The hike is very steep and it will certainly lower the competitiveness of textile companies,” Cotton Association of India President P D Patodia said.
The unprecedented rise in MSP will fuel inflation and escalate costs, Patodia said.
“We feel that MSP should have been appropriately cost-based, gradual, bearable, consultative and essentially a balanced proposition. We are indeed baffled at such an increase,” he said.
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“Cotton prices were already higher than the MSP but a steep rise may further push up the prices which may raise imports despite a healthy supply,” Patodia said. The revival of monsoon in all parts of cotton-growing zones during the last few weeks has brightened the prospects of another good crop for the ensuing cotton season.
“We are expecting cotton production to be robust and above the last year’s levels. Cotton production is estimated to be at 32.5 million bales in the crop year ending September 2009,” Singh said, adding that textile exports for the January-April period in 2008 rose about 23 per cent from the same period last year.
The exports of raw cotton in 2007-08 stood at 10 million bales, mainly due to higher global demand and fall in acreage in the US. Higher export of raw cotton had an impact on the cotton prices, which shot up to historic highs during the current cotton season.
The BT technology has conferred a great production advantage in terms of low-cost and resultant improvement in productivity. However, this has resulted into lopsided production of 28mm-30mm staple group.
India to have cotton futures contract soon
Cotton Association of India plans to launch cotton futures contracts, a top industry official said. “We are working on cotton futures contract. Risk management is a great necessity to stay alive in any business, more particularly for efficient functioning of the cotton sector,” Cotton Association of India President, P D Patodia said.
“We are also designing a Cotton Price Index to be launched within a few months along with two new cotton contracts that are being given final touches before the approval of the FMC,” he said.
CAI proposes to launch two new cotton contracts — Gujarat Sankar-6 and Punjab J34 — two varieties of cotton widely traded and exported. They will replace the two defunct cotton contracts on CAI.