The Hindu Business Line : Raw cotton export boom cheers growers

Raw cotton exports from the country are booming like never before, bringing cheer and of course, remunerative incomes to lakhs of cotton growers across the country. Indian cotton is in great demand in the export markets, and despite a firming rupee, shipments are moving at a fast pace to markets such as China, Pakistan, Bangladesh and South East Asia.

In terms of output and prices, Indian cotton farmers have not had it so good for several years; and why not? They produced a record crop of 300-lakh bales (170 kilograms each) in 2007-08. As a result, this year, India ranks second in world cotton production, having overtaken the US and standing next to China.

Given the domestic consumption requirement of about 225-230 lakh bales maximum, there is a genuine export surplus of a large quantity of Indian cotton. Without exports, Indian cotton prices would have collapsed under the weight of large crop and farmers would have had to bear the brunt of price fall.

Rupee appreciation

Fortunately, world prices have turned stronger following lower export surplus in the US and rising import requirement of China.

This has generated export demand and to an extent helped neutralise the rupee appreciation, which usually leads to lower export realisation in rupee terms.

After several years of staying in the dumps, raw cotton exports have begun to perform well since 2006. Indian cotton is beginning to be noticed by the world at large. Growers are the immediate beneficiaries because exports act as price support. Domestic cotton market has continued to stay producer-friendly despite a large crop, because of ongoing export demand.

But now, attempts, both overt and covert, have begun from certain sections of the cotton sector to put a brake on cotton exports. Lobbying to stop cotton exports has started. Despite bumper crop and heavy arrivals, domestic cotton prices have by and large remained firm. As a result, cotton mills that had hoped to source their requirement at lower prices are unhappy.

Export sales

Because their expectation of lower domestic cotton prices has not materialised presumably because of exports, there is demand to place an embargo on export sales.

It would be most unfortunate if the Government succumbed to lobby pressure.

Any tinkering with the ongoing smooth export of cotton would be completely counter-productive, both short-term and long-term. Cotton growers would be adversely affected; and motivation to keep up the pace of production growth would be impaired.

Worse, India’s credibility as a reliable supplier of raw cotton to the world would be at stake. A restriction or even ban on export may be justified on grounds of shortage — like in case of wheat and pulses. But cotton is in genuine surplus; and there is absolutely no justification to consider any restriction on export.

Understandably, the cotton textile industry is facing serious challenges arising out of rupee appreciation. Export competitiveness of Indian textiles is getting blunted. The industry needs support. The policymakers have to explore fiscal and non-fiscal concessions to help the industry tide over the current bad phase. But to stop cotton export in order to support the textile industry would be suicidal.

Indeed, it is time for the industry to pause and think. Over the last 4-5 years, the industry has had enough opportunity to establish backward linkages and undertake contract farming of cotton in order to meet its requirements.

Only a handful of mills are actually engaged in producing their own raw material in a captive fashion. The industry must learn to at least partially meet its raw material needs through its own efforts.

In any case, cotton imports are under open general licence subject to customs duty of a reasonable rate of 10 per cent on imports. With the rupee appreciating, imports would be so much cheaper. Also, import of cotton for production of export products is exempt from customs duty under the advance licensing scheme.

It is estimated that this season, India will export around 60-lakh bales of cotton. Already close to 30-lakh bales have been shipped out.

The country is earning foreign exchange on exports and making a mark in the global cotton sector. Nothing should be done to disturb this very positive development.

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