The Union Minister of Textiles, Mr Dayanidhi Maran, deserves to be complimented for not succumbing to lobby pressure and for his assertion that the current situation did not warrant any ban on raw cotton exports. He is absolutely right.
In recent weeks, industry associations representing cotton textiles had been clamouring for restrictions on raw cotton exports. The Coimbatore-based South India Mills Association demanded an outright ban on raw cotton exports, and the Federation of Indian Export Organisations — whose mandate is to promote exports — ironically joined in the chorus to seek a suspension of such exports.
After a few days, the apex body — Confederation of Indian Textile Industry (CITI) — perhaps realised the absence of strong logic in the demand for an outright export ban and so took a nuanced approach to seek calibrated exports of cotton so as to meet domestic demand. While it was unclear what “calibrated exports” actually meant, it was clear from the fine print, if one cared to read, that the CITI chairman wanted registration of cotton contracts suspended.
Panic registration
The Cotton Association of India argued that as the cotton supply position was comfortable, no restriction was warranted. What's the latest? It is believed that as at end-November, export contracts for anything between 35 lakh and 40 lakh bales have been entered into. Indeed, there has been what can be described as “panic registration” after the mills started to mount pressure on New Delhi to ban exports.
To see in perspective, it may be stated that by early November, trade estimates suggested that about 15-20 lakh bales may have been committed for export. In about ten days the quantity actually doubled, following panic reaction to the vociferous demand for an export ban. Now that the government has made its policy clear, the sense of panic has given way to a more practical and business-like approach to export trade negotiations. Look at the numbers; they never favoured any restriction on raw cotton exports.
With opening stock of 70 lakh bales and output of an estimated 300 lakh bales (some pitch it lower at 285-290 lakh bales) for 2009-10, there is more than enough cotton available for domestic use.
According to a senior trade representative, market arrivals during October and November totalled about 70 lakh bales; and the expected arrivals during December and January are no less than 65 lakh bales each. Subsequently, of course, arrivals would taper off as the season wears out. In other words, about 270 lakh bales (opening stock plus arrivals) would be in the market over the next two months (till end-January). Mills' average monthly consumption requirement is an estimated 25 lakh bales maximum. Between November and March (including one month inventory) mills would need to purchase 125 lakh bales of cotton. Even if 40 lakh bales as estimated to have been committed for export are shipped out by end-January (most unlikely), total disappearance would be 165 lakh bales as against availability of 270 lakh bales as shown above over the next two months.
‘Too much cotton'
On the other hand, if export policy is tinkered with, it is highly likely that prices would actually crash with the weight of heavy arrivals. This is precisely what the Government has sought to prevent. The reality is there is simply too much cotton in India. The surplus has to be shipped out and at a time when the export market is ready, and not when the domestic user industry deems it fit.
Mr Suresh Kotak, former president of East India Cotton Association, told Business Line that the possibility of obtaining better export prices for Indian cotton should be seriously explored. Advocating the concept of “minimum export price” for cotton, he said the MEP could be linked to Cotlook Index and reviewed from time to time.
Current prices are said to be around 70 cents a pound.
Source : Business Line