Policy confusion has once again created uncertainty in cotton trade. Cotton prices have plunged by more than 30 per cent in the past couple of months and inventories of both cotton and cotton yarn have begun to pile up. Little wonder then that a section of the cotton ginning industry recently went on strike and spinning mills downed their shutters for a day in protest against the government’s apathy towards their plea that cotton and cotton yarn exports be further liberalised. The entire quantity of 5.5 million bales of cotton that the government had allowed to be shipped abroad has been fully dispatched. Sizeable stocks of cotton are either lying unsold with farmers or awaiting processing at ginning units. The spinning industry has, for the time being, decided to cut down production by one-third to prevent yarn inventories from increasing any more. At home the textile industry, notably garment manufacturers, faces an uncertain market with domestic demand not picking up adequately, despite the dip in raw material prices. The industry is, therefore, lukewarm about any suggestion that it pass on the advantage of lower costs to consumers.
Time is of the essence because the cotton sowing season has already begun. If the downturn in prices is not stemmed soon, growers may consider cutting down cotton plantings. That will impact the next season’s sowing and in the new cotton season beginning October 2011 supplies would dwindle. Union Agriculture Minister Sharad Pawar has already cautioned the government against any further delay in taking a call on reopening exports. Clearly, Mr Pawar does not want a repeat of what happened in the case of sugar. Controls on sugar exports at a time when international prices ruled high hurt domestic industry. Should cotton meet with the same fate?
China is the biggest gainer from India’s absence in the international cotton and cotton yarn bazaar. Ironically, uncertainty on this count has been allowed to persist despite all the ministries concerned, including those of textile, commerce and finance, being favourably inclined to increase cotton export quotas. However, none of them seems sure of the quantity of additional cotton or cotton yarn that can be allowed to be shipped without jeopardising supplies for the local industry or hurting interests of the suicide-prone cotton growers. Misgivings on this count arise largely because of the ambiguity on cotton production and the amount of surplus available for export even at this late stage in the 2010-11 season.
The estimates of cotton output made by the Union agriculture ministry and the Cotton Advisory Board (CAB) differ sharply, as always. While Krishi Bhawan is certain that the cotton harvest in 2010-11 was a record 33.93 million bales, the CAB had pitched this number at 32.9 million bales in February but subsequently lowered it to 31.2 million bales. However, even taking the lower estimate of production into account, and keeping in view the likely consumption by the mill sector and the stocks held by farmers, net availability of an additional 1.5 to 2.0 million bales of cotton for exports seems like a good idea to pursue. Rather than offer fiscal subsidies, that the industry will inevitably seek if faced with a weak home market, it is best to allow export trade to bridge the gap between demand and earnings.
