The Hindu Business Line : Ginners in a spot on higher cotton support prices

The MSP was hiked 40-50 per cent for most cotton varieties by the Government in anticipation of good export opportunity on the back of a crop failure in the US and drop in China output.

Suresh P. Iyengar

Mumbai, Oct 17 The substantial rise in minimum support price (MSP) for cotton has put the ginners and textile industry in a quandary. The prevailing financial crisis has pushed many ginners to the verge of closure in the cotton belt of Punjab, Haryana and Rajasthan.

J-34 prices

In Punjab and Haryana, prices of the J-34 cotton variety has increased 31 per cent to Rs 2,750 a quintal in October against Rs 2,100 a quintal during the same period a year ago. The MSP has been raised to Rs 2,700 a quintal in the northern region from Rs 1,950 a quintal fixed last year.

Mr Yogendra Gupta, Chairman of the Haryana-based Supreme Ginning Factory, said about 60 per cent of the ginning capacity in the northern region will be shut down in next one month if the Government does not reduce the MSP by Rs 300-400 a quintal.

Export hopes

The MSP was hiked 40-50 per cent for most cotton varieties by the Government in anticipation of good export opportunity on the back of a crop failure in the US and the drop in China output. However, the unexpected financial crisis has upset the cart.

Most ginners had increased capacity anticipating good demand from the textile industry.

Cotton Corporation of India, the nodal agency to procure cotton at MSP, can buy only up to 15 per cent of the total production at MSP in a particular state.

Credit crunch

“If it has to breach the limit, CCI has to not only take the Government permission, but also enhance its storage capacity and find suitable buyer who can match MSP,” said Mr Vijay Trivedi, Vice-President, Commodity and Trade News.

Besides concern over slowdown in demand for cotton, many of the ginners and textile industry members had complaints over power supply shortage and liquidity crunch at the Cotton Advisory Board meeting, said Mr A.B. Joshi, Textile Commissioner.

The cash-strapped textile companies have mooted that the Government should provide working capital at 7 per cent interest rate, reduce the margin money required for availing working capital to 10 per cent from 25 per cent and extend the validity of working capital loans from four months to nine months.

DEMAND TO FALL

The demand for cotton from the textile industry will fall about 10 per cent to 226 lakh bales from 203 lakh bales last year.

Mr D.K. Nair, Secretary- General, Confederation of Indian Textile Industry, said the demand will go down further if the economic turmoil in the US and European Union does not come to an end soon. On the domestic front, the credit crunch and soaring inflation will play a spoilsport.

“If the government makes credit available at a cheaper rate the demand from the mills will increase providing a relief for the ginners,” he added.

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