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The cotton textile industry fears that the Government's surprising ban on cotton exports could result in international and domestic prices shooting up with a time lag.
This may, in turn, have a cascading effect on the entire value chain starting with an increase in yarn prices, industry sources said. A similar sequence of events took place the year before last, following a ban on cotton exports at the time, they said.
Incidentally, India is the second largest producer and exporter of cotton in the world. A majority of representatives from the allied industries — during a meeting last week with the Government — had opposed any ban on cotton exports, sources said.
Since cotton imports are allowed duty-free, their view was that there should be free trade of cotton and the market should determine the way forward.
They pitched for free trade since there was surplus cotton in the international markets, and had thought the Government may consider some other approach. But suddenly, the Government decided to intervene and, in a bid to make more cotton available to mill-owners, decided to ban exports.
Determination of surplus
Now, the industry is left wondering if the Government's latest move is to determine how much surplus cotton is actually there in the local market. Also, against the Government's estimate of a cotton surplus of 84 lakh bales (of 170 kg) available for exports, the country has already shipped close to 94 lakh bales. Arrivals in the domestic market are still around 1,25,000-1,30,000 bales daily, sources said.
“The Government should review the situation. If there is a drop in consumption, it can permit cotton exports. That will not be an issue, and let there be free trade,” said Mr Amit Ruparelia, Chairman, Cotton Textiles Export Promotion Council (Texprocil).
SLACK DEMAND
Cotton prices had fallen in the international market by about Rs 3,000 (for a candy of 356 kg) in February, following slack demand. This is expected to drop further, given the continued poor demand and lack of buying. Even demand from major markets such as China is declining. There is also weak demand for garments in the global market. All this has led to mill-owners not building up inventories and only sourcing the fibre according to the demand.
Production this season is estimated at around 345 lakh bales, around 20 lakh bales higher than last year.
There are rumours that farmers and traders may be holding on to their stocks expecting an increase in prices, like last year.
If it touches similar highs, such as $2.2/pound, owing to the ban, they are bound to make a big profit, sources said.
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