Cotton quota hike: SIMA says mills may have to shut down for now

The Southern India Mills Association (SIMA), Coimbatore, has expressed the fear that the increase in the cotton export ceiling may lead to temporary closure of the mills due to shortage of cotton in the domestic market and price spiral.

The association also contends that the move, based on unreliable estimates of surplus cotton crop, would not benefit the farmers who have already sold their crop but only help the middlemen.

In a statement, the SIMA Chairman Mr J. Thulasidharan, said the decision of the Group of Ministers (GoM) at a meeting on Wednesday under the Chairmanship of the Finance Minister, Mr Pranab Mukherjee, to increase the cotton export ceiling from 55 lakh bales to 65 lakh bales for the 2010-11 season had come “as a shock” to the cotton textile industry which has been facing the “worst ever crisis during the past several decades”.

He said it was a particularly serious blow to the ailing spinning sector that had been forced to slash production by 35 per cent to adjust to the “supply-demand mismatch” caused by the “lopsided policies” of the Government, particularly the premature announcement on cotton export and also the suspension of cotton yarn export between January and March 2011 that led to piling up of yarn.

Mr Thulasidharan recalled that during 2009-10, the same GoM had assured that a minimum closing stock of 50 lakh bales would be kept after providing for the domestic consumption.

The Cotton Advisory Board (CAB) has estimated a closing stock of 27.5 lakh bales after earmarking 55 lakh bales for export and factoring domestic cotton consumption.

The Agriculture Ministry has “over-estimated” the cotton production as 339 lakh bales as against the CAB estimate of 312 lakh bales. But according to the estimates of cotton producing States, the production was less than 310 lakh bales.

The SIMA Chairman pointed out that the main strength of cotton yarn manufacturing countries like China was the comfortable “stock-to-use ratio”.

The Indian spinning sector was doing very well during 2003-07 when there was stability and parity between the cotton and yarn prices, but the “trader-friendly policies” of the Government since 2008 have very seriously affected “not only the spinning sector but also the livelihood of over 25 million people directly employed in the cotton textile industry”.

Mr Thulasidharan argued that as all the farmers would have sold their produce by March end, the latest announcement would benefit only a few traders “who are holding huge stock” and feared that “hundreds of mills will be closed at least for two to three months for want of cotton during August to October 2011”.

The SIMA Chairman feared that the shortage of cotton in the domestic market would only drive the prices up resulting in further glut in the market and abnormal losses not only to the spinning mills but also to “all the sectors across the value chain”.

He appealed to the Government to reconsider its decision to save the jobs of millions of workers and keep the mills functioning “at minimum loss”.

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