The Hindu Business Line : Cotton traders seek to `discipline' credit supply

EVEN as the cotton trade continues to be exerted by the payment out-standings for the cotton supplied, traders, under the banner of the All-India Cotton Traders' Conference, have sought to address the issue with a suggestion to work out some finance model that would take care of the suppliers' credit.

This issue, along with the need to have a national cotton council and bringing down the cost of trade, formed the core content of discussions at the all India Cotton Traders Conference held here during the weekend under the aegis of the country's two leading bodies - the Mumbai-based East India Cotton Association (EICA) and the Coimbatore-based South India Cotton Association (SICA).

Participating at the trade business meet, the President of the EICA, Mr K.F. Jhunjhunwala, in his presentation felt that at the estimated cotton crop size of 165 lakh bales, the value of the cotton in trade stood a staggering Rs 16,500 crore. With huge amounts of the cotton traders' funds locked up as payment dues for the supplies they made, there was a need for a statutory protection to safeguard their legitimate dues.

He said the prevailing credit indiscipline in the cotton sector was a cause of concern. One answer to overcome this could be like all export transactions in cotton, yarn or cloth which are being carried out through the system of letter of credit, these domestic transactions too should be done through the system of registered contracts and the LC route.

Sharing the concerns of the cotton trade with regard to the transaction cost, the SICA Secretary, Mr K.N. Viswanathan, said the liquidity available for other industrial sector and that of cotton textile industry vastly differed with bankers continue to charging very high interest rate for cotton purchases. He said the other bottleneck in textile trade in general and commodity trade like cotton/yarn had been the high transaction costs.

Mr Suresh Kotak, the former EICA president and Chairman of the Kotak Ginning and Pressing Industries Ltd, said on the sidelines of the conference that to tackle the outstanding cotton dues and protect the traders interests, the association had initiated steps to evolve a workable financial product. "We are in the process of developing a workable system of warehouse receipt exchange which could act as payment protection mechanism for the cotton suppliers and this is being developed in association with specified bankers," Mr Kotak said adding that this system would also offer scope to convert it into `demat' mode for easy trading.

In response to the former Indian Cotton Mills Federation Secretary General, Mr M.P. Gajaria, plea to form a national cotton council on the lines of the US-based Cotton Council International, Mr Suresh Kotak said EICA was in the process of setting up a working group to prepare a road-map for a national council.