We are shocked to hear that the Government has suspended registrations of cotton exports and has also suspended the shipments against past registrations. What is more distressing is that only a few days ago did the Government impose an export duty on cotton.
The registered but unshipped quantity as reported by the Textile Commissioner’s office on the day of the announcement is around 25 lakh bales. These contracts between Indian exporters and their foreign buyers have been entered into several weeks back and exporters had prepared for shipments after registering their contracts with the Textile Commissioner’s office. It is quite likely that several of such contracts will turn into international disputes. Not only will the exporters be subjected to huge losses but they will have to also face claims and arbitrations with their buyers.
We urge the Government to permit shipments against contracts that are already registered immediately and also withdraw the suspension of registration of cotton exports.
This move will also adversely affect the interests of the nation in general and that of the Indian farmer in particular. While the Indian farmer has the protection of a guaranteed MSP, this should not be the reason to prevent him from realising a value for his produce which is equal to his counterpart in USA, China, Uzbekistan and several African Countries.
Cotton acreage which has seen a rising trend recently will receive a setback if farmers do not receive a fair price as per international levels as a result of the suspension of exports. Farmers will soon take a decision about which crop to sow and the suspension of exports will discourage them from planting cotton in the coming season. Over and above this the realization for his produce of cotton will be much lower because of the artificial build up of carry out stocks which in turn will depress prices at the beginning of the next season.
The entire cotton chain will agree that it is in everybody’s interest that more and more cotton is produced in the country. Thus it will also be in everybody’s interest if the record high cotton acreage this season is surpassed in the next season.
It has been through hard work and efforts of all concerned that Indian cotton has now been accepted as good quality cotton. India has also painstakingly built up a reputation as being a reliable and regular supplier of cotton. The unreasonable discount that it had to face vis-à-vis competing cottons from other countries has finally been diluted. Indian cotton now sells at a level which is at par with West African growths and is rapidly catching up with American, Brazilian and Australian cottons. Any change in the policy of allowing free and unhindered exports would prove detrimental to the reputation of the country as a reliable and continuous supplier of cotton.
Several sectors are raising the issue of stock to use ratio. They are also proposing a bench-mark level for it. It needs to be noted that consumers of raw cotton are not in any way stopped from maintaining this ratio at their desired level. Consumers are at liberty to purchase cotton from the open market and stock it for their use. It is unfair on their part to not buy the cotton but still wish that the desired stock to use ratio is maintained as in this case farmers, ginners and traders would have to do it on their behalf.
In any case the Country is likely to see a reasonable stock to use ratio at the end of the season. While comparing the ratios with that of other countries one needs to bear in mind that India is a cotton producing Country unlike Bangladesh, Taiwan etc. which do not produce any cotton. Again India is a net exporting Country unlike China, Pakistan or Turkey which are all net importing Countries. Also the ratio for India pertains to the October–September period in comparison to the International norm of August–July period. In fact of late, cotton begins to arrive in India even before the statistical season commences on 1st October.
This season 25 lakh bales of the new crop had arrived by the end of November. Such a figure if repeated for the new season would add to any closing stock at the end of the season on 30th September.
The Cotton Advisory Board in its last meeting has arrived at a pessimistic estimate of the crop for this season despite the fact that the arrivals figures are higher than that of last season at the same time. Arrivals are higher despite the late monsoon this season which would normally also result in late arrivals. It is also expected that imports will be higher than estimated by CAB.
Local prices have risen this season only because of continuous purchases by spinners who have been realising excellent value for their yarns and in reaction to higher cotton prices in the international markets. The rise in yarn prices has been more than proportionate to the rise in cotton prices and is chiefly linked to strong international demand for Textile products. Thus cotton prices have been following yarn prices rather than the other way round.
Despite the rise in cotton prices locally, Indian mills continue to get cotton cheaper than almost any of their counterparts in the world. Over and above this, Indian mills have the option to import cotton without any restrictions at nil import duty unlike their competing counterparts in other Countries for e.g. the largest importer China where mills have to face quota restrictions, duties and local taxes to import cotton. It would be ironical if the Indian mills receive protection in the form of an export duty at the cost of the Indian farmer. This would amount to the Indian farmer subsidising the Indian mill.
Even the Government of our neighbour Pakistan has put restrictions of yarn exports while leaving exports of cotton untouched and free in spite of it being a net importing country.
Any move to control cotton exports would once again result in India being sidelined and the Indian farmer once again left to the mercy of the mill sector and once again losing the richly deserved opportunity to earn international prices for his produce.
The long term interest of the Indian textile industry lies in the availability of abundant cotton in their backyard. Parochial measures if taken at the instance of certain sectors only will defeat the longer term objectives of the entire cotton value chain by reducing production in the Country.
In view of the circumstances explained above, any restriction on the exports of cotton would be detrimental to the Indian cotton economy and deprive all the cotton farmers of the legitimate price of their produce.
Mumbai, Dhiren N. Sheth
23rd April 2010 President |
