Cotton Supplies Fuel Industry Struggle in India.

India's textile and clothing industry has been feeling the pinch this year from rising cotton costs. Its leaders have criticised the central government's decision to allow unrestricted exports of cotton from October this year, and are calling for a long term policy to ensure the sufficient supply and price stability of the fibre in the domestic market.

"The export quotas for cotton should be announced every year after assessing the production and net surplus available in the country", says Darshan Lal Sharma, president and executive director of Vardhman Textiles, in Ludhiana, Punjab. He contends that the domestic textile industry should get some benefit out of the large volumes of cotton produced in the country.

India's Apparel Export Promotion Council (AEPC) is equally opposed to free export decisions that could affect cotton prices in the domestic market. "There should be a long term policy offering price transparency in India," says compliance director Chandrima Chatterjee. "International garment contracts are fixed six months in advance, and if the prices increase sharply, exporters can't pass them on."

She is calling for a mechanism which would help in fixing an export quota for the government based on a ratio between available cotton stocks and projected domestic consumption.

In the past eight years, the production and consumption of cotton in India has been rising - with one exception in recessional 2008-2009 (India's cotton year runs from October to September).

According to India's Cotton Advisory Board, the production of cotton in the country increased from 29.5m bales (170 kg each) in the 2009-2010 period to 31.2m bales between 2010-2011. Domestic consumption during the same period also increased from 25m to 27.5m bales.

India's cotton exports, too, have been rising, and stood at 5.5m bales in 2010-2011. A recent report by the United States Department of Commerce projects shipments to reach 8m bales in the 2011-2012 period.

With this in mind, the Cotton Association of India - which includes members from various groups of cotton traders, farmers and textile mill operators across the country - is in favour of free trade.

The association's president, Dhiren N Sheth, told just-style that "there should be unrestricted and duty free imports and export of cotton under the [central government's] Open General Licence (OGL)."

Under an OGL, no licence is really required to import or export cotton to or from India. Furthermore, says Sheth, the government's role should be restricted to announce minimum support prices for the farmers, and it should intervene only when the prices fall below that level.

Cotton conflict
The idea of free trade also attracts Indian cotton farmers who complain that their interests have often been neglected, according to Kishore Tiwari, president of Vidarbha Jan Andolan Samiti, a farmers' organisation in Nagpur, central India. "The Indian garment industry has flourished because of the cheap cotton from the domestic growers, but the farmers are in still in distress," Tiwari says.

In many cotton growing areas of the country, farmers have actually adopted the use of genetically modified variety of cotton and have registered better yields. However, Tiwari still complains about rising input costs, and demands that the benefits of high international prices be passed on to the growers. "This year, we once again expect a shortage of cotton in the international market, which gives the Indian farmers an opportunity of getting good price for their produce," he explains.

Even international economists do not have an easy solution for the cotton industry. John Robinson, an economist with US-based educational outreach agency Texas AgriLife Extension Service, told just-style that "China too, is facing a problem of balancing the interests of cotton growers and garment manufacturers." However, he adds: "I am not sure what is the best way for the policy makers to balance the interests of both parties."

In the US, says Robinson, "we are moving away from subsidies and trade controls - and from an economic theory point of view it is most beneficial when there are no restrictions in the trade."

Balancing act
According to Chatterjee, though, the situation in India is different than in other countries, because as the second largest producer of cotton in the world, "and one of the aspiring top five exporters of garments; we would like to maintain both our positions intact." She agrees, however, that industry should not benefit at the cost of the poor farmers. "I am sure that there is a midway between free trade and price regulations."

Indeed, the Indian government has been calibrating its response to avoid causing hardships to either party. In March of this year, the government imposed a temporary export limit of 550,000 bales of cotton for the cotton session ending on 30 September  2011; and then increased that limit to 650,000 bales in June. In August, however, this limit was removed completely.

The matter is complex, and politicians and officials have been refusing to take firm public stands on the subject. A senior official in India's Ministry of Textiles, for example, when asked about the future of the cotton industry in the country told just-style: "This is a very sensitive subject, and I cannot comment on it."

Source : just-style.com