Tariffs to curb cotton exports are desirable .

The pragmatic change in the Union Textile Minister's stand as regards cotton exports is heartening. According to Mr Dayanidhi Maran, there should be no ban on cotton export, but export should be calibrated through use of the tariff mechanism. His Ministry is likely to press for a hike in export duty on raw cotton which at present is Rs 2,500 a tonne.

The Minister's latest stand makes sense, and should find favour with most stakeholders. Ideally, there should be no restriction on cotton import-export trade, given the market fundamentals. Imports are open and duty-free in any case. On the other hand, there is no shortage of cotton in the country; if anything there is a real surplus, much beyond the industry's genuine requirement. The issue is not cotton availability, but price.

Be that as it may, if exigencies of the situation demand, it would be more appropriate to use the tariff mechanism to regulate foreign trade, rather than invoke the trade policy to place quantitative or similar controls.

While tariffs serve multiple purposes including calibrating trade flows and generating revenue, it is absolutely necessary that tariffs are reviewed regularly. By their very nature commodity markets are dynamic and volatile. Our domestic market is reasonably well integrated with the global market; so, global developments and price cues exert an impact. If world cotton prices rise, it is bound to get reflected in our domestic prices. No one can wish it away.

Important role

At the same time, as a major producer-exporter of cotton, India has an important role to play in the global cotton trade. Markets have, in recent years, been cultivated with sustained effort and care. Uninterrupted servicing of markets and customers is an important trade objective, indeed a trade imperative. Keeping overseas customers in suspense or on hold would be self-defeating.

New HIGH

On current reckoning and subject to normal monsoon, cotton crop in the ensuing season may record a new high. Farmers continue to favour the crop because they have received remunerative returns. Higher minimum support price and robust demand — domestic as well as export — have combined to boost farm-gate prices.

India has emerged as an important player in the world cotton trade. Cotton export without quantitative restrictions, but subject to an export tax means both domestic prices and international prices will adjust to the new reality. At the same time, exchequer will earn revenue. It is widely expected that world cotton prices will stay firm in the new season. Without delay, the Government must announce a liberal export policy for raw cotton.

Global cotton market fundamentals are seen tightening in 2010-11 with the current year's ending stocks projected at almost a fifth below last year's and smallest level in six years. At about 24.8-24.9 million tonnes, production and consumption are forecast to be tightly matched. Import demand into China (the world's largest producer, importer and consumer) is expected to rise by a fifth.

According to the International Cotton Advisory Committee, season average prices are likely to rise by about 10 per cent to 85 cents a pound in 2010-11. This is good news for producers and exporters and of course for Indian cotton growers.

Source : Business Line