The Hindu Business Line : Ban on cotton exports will harm farmers more

The Union Government in the recent past has been taking various measures to protect the interest of the cotton farmers. Some of the important measures include relief packages, particularly to the Vidarbha cotton farmers.

In spite of such steps, suicides by the Vidarbha cotton farmers still continue. It is, therefore, important and the responsibility of the Government to access the impact on cotton farmers before any changes are contemplated in the policies related to the commodity.

The Confederation of Indian Textile Industry (CITI) has recently made an appeal (reported in the Financial Express, December14, 2007) to the Commerce Minister and the Finance Minister saying cotton export to China will hit Indian textile industry. The arguments are far from the truth and any effort to divert the attention of the Government will lead to further the agony of cotton farmers.

Let us examine the factual position to understand the reality. Table 1 shows that for a long time, the cotton textile industry has been enjoying the benefits of record production and comparatively lower prices. Hence, the argument that the sector is deprived of competitive raw material is not supported. Also worth drawing attention here is Chinese farm-supporting economic policies. The Chinese Government has ensured that domestic cotton prices are maintained at higher level than international cotton prices to help their cotton farmers.

Comparing Indian cotton prices vis-À-vis Chinese domestic prices (Table 2), it is clear that Indian cotton prices are much lower. So the claim that competing Chinese mills are getting cheaper raw material is absolutely base-less.

Free to import under OGL

It will be interesting to note that the import of cotton in China is controlled through quota mechanism with an import duty as high as 40 per cent. In contrast, import cotton in India is under OGL (Open General Licence) with negligible import duty which means Indian cotton mills are free to import cotton any time they feel international prices are competitive and without any duty payment under advance licence.

It is worth mentioning that Pakistan and Bangladesh textile mills are also in similar position as their Chinese counterpart.

To conclude, the Indian textile industry has been enjoying the benefit of comparatively lower cotton prices to remain competitive in the world textile market.

Surplus cotton

If we analyse the demand and supply scenario in India (Table 3), it is observed that we have enough surplus cotton even after maintaining certain amount of buffer stocks (closing stocks). The exports of cotton from India have not increased proportionate to the increase in cotton production.

Considering record production this year and the reduced consumption trend as well as maintaining same closing stock level as per last year (2.4 months of consumption), the exports to the extent of 91 lakh bales of excess supply can be easily allowed to maintain the equilibrium in the supply and demand

If the export of cotton is banned at anyone’s behest, the domestic cotton prices will crash. It would prove disastrous to the Indian cotton farmer, as the domestic textile industry will not pay them the fair value of their cotton.

Second largest producer

It is worth appreciating and commending that in spite of lower cotton prices in the last couple of years, the cotton farmers have relentlessly worked towards achieving the record production.

India has become the second largest producer of cotton in the world now. Any effort to ban cotton export or crash in cotton prices will lead to increased agony of the farmers and compelling them to shift to other competing crop.

In fact, such situation will prove more harmful to the industry in the long run. If we compare the duty drawback available to other agro-commodities for exports, one per cent duty drawback to cotton exports needs to be re-looked and increased at least to the level of 3-5 per cent in order to compensate for already lower duty drawback on cotton as well as steady appreciation in the Indian rupee (11 per cent so far this year)

To conclude, it is important to reiterate that the Indian cotton farmers need to be supported by proper Government policies and no ban on raw cotton exports to be implemented.

(The author is Managing Director, Shail Exports Pvt. Ltd.)

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