Domestic textile producers have expressed reservations at the government’s probable move to raise the minimum support price (MSP) of cotton by 40 per cent. They opined that the move would be undesirable, given the historically high prices of cotton now, and would further push up the costs.
The government had fixed the MSP for medium staple cotton at Rs 1,990 a quintal and long staple cotton at Rs 2,030 a quintal for the cotton year 2007-08. The government is planning to revise the MSP to Rs 2,500 a quintal and Rs 3,000 a quintal respectively for the cotton year 2008-09.
R K Dalmia, president, Century Textiles and Industries, a subsidiary of the B K Birla group, said, “It will be a problematic situation and will keep the textile industry under pressure. The current market prices are already above the MSP and if it goes up further, so will the market rates.”
According to statistics available from the International Cotton Advisory Committee, the global supply of cotton in 2008-09 will be marginally lower than the current year. Moreover, it suggests the production of cotton in the US will see a drop of over 12 per cent to 21.3 million bales (1 bale = 170 kg) in 2008-09 from 24.3 million bales in 2007-08.
P D Patodia, chairman, Confederation of Indian Textiles Industry, said, “This big a hike is not required. The reasonable increase would be between 10 and 15 per cent. Else, in the long run it will have inflationary impacts.”
The domestic market has already seen a jump of over 40 per cent in cotton prices since the beginning of the current cotton year in October last year.
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According to D P S Kohli, chairman, Koutons Retail, international prices are up and fabric costs have risen by 5-10 per cent. “A rise in MSP will affect fabric prices as part of a chain reaction,” said Kohli.
However, an expert on cotton, who did not wish to be named, said, “The industry needs to align itself to the global rates. All agri-commodities are under-priced. A 40 per cent hike in MSP would be a reasonable increase. The industry needs to be competent.”
Arun Kejriwal, textile expert and founder of Kejriwal Research and Investment Research Service, said, “Such an MSP hike will hit the industry badly. With this, the government will leave no room for market movement based on supply and demand factors.”
He added that in case the global prices slip, the industry would rather import than buying from the cotton farmers.