The Indian cotton textile industry is going through a very difficult phase despite a bumper cotton crop. Typically whenever a country has a good cotton crop, the local industry is said to be a major beneficiary due to better availability, quality and reasonable costs of raw materials. However due to some special Government policies exclusively for the cotton crop, the whole industry and the common man is losing out in a very big way.
As we all know, agricultural crops in India are largely dependent on the weather conditions, hence the quantity and quality varies from season to season leading to high volatility in prices. The Indian Government has always put the interest of the country people in the foremost and accordingly developed balanced policies. The last few years are proof to the same, where the Government banned exports of rice, wheat and sugarcane to ensure that the country had sufficient buffer stock and prices were kept within check so that common man didn't suffer due to inflation. Even the Government went to the extent of allowing free imports of edible oil and sugarcane to correct anomalies and reduce the suffering of the common man. However despite such measures, inflation of food still reins above 10% - imagine what would have happened if the Government had allowed free exports!!!
However for some strange reason the Government has made an exception for one particular crop - COTTON. Hence we don't need to imagine what would have happened, as we can see what is happening in the prices of cotton - in one year prices have moved up from `23000 a candy to `40000 a candy, a mind blowing 75%. And this is not because we have a shortage of cotton crop as was the case of sugar, pulses or rice. It is simply because the Government allowed it to happen and is still allowing it to happen. As a result the prices of yarn have moved up by 50% and so have the prices of fabric and garments which are a basic necessity of the "poor". Roti, kapada aur makkan i.e. food, cloth and shelter are the 3 basic necessities of mankind. When the Government has created policies to bring down prices of basic essential items like rice, wheat, sugar and edible oil then why is it doing the reverse for raw cotton fibre??
Why is the Government not concerned about a poor man's clothing need?
The Government is concerned about roti - they not only think of current requirement but also strive to create a sufficient buffer stock. However when it comes to clothing, they have turned a blind eye for some strange reason. In case of other crops like rice, wheat and sugarcane despite having bumper crops and good buffer stocks, the Government has decided not to allow exports - however they seem to be in a big hurry to allow cotton to be exported to other countries while the home industry is starving for cotton and prices are hitting the common man in an unprecedented way.
Why the hurry to allow cotton exports?
An important question that comes to mind, as to why is there hurry??? Why can't they wait for the crop to actually arrive, and then allow for local consumption and creation of minimum required buffer stock and then think of exporting the surplus cotton if any. The only person gaining out of this move is either the people who are exporting or the countries who are buying i.e. Pakistan, China, Vietnam and Bangladesh etc. It is a commonsense, that all agriculture products fetch better prices in off season when supply is low, then why are we in a hurry to sell our cotton fibre to outsiders in the peak of season? Cotton isn't a perishable commodity, then why hurry sales and sell at lower prices. Cotton Corporation of India was formed to ensure sufficient buffer stock of cotton and reasonable prices for farmers, why aren't they used to buy and stock cotton like FCI is doing for food grains. The cotton can be sold in off season to Indian users or internationally at better prices once, plus the objective of maintaining buffer stock would also be achieved.
Today India's closing stocks of cotton are at an all time low of 40 lac bales. It is even lower than the Government own stated objective of 50 lac bales. The stock to use ratio is 15% against the world average of about 40% (which is an all time low level). Further the growth in Indian textiles is 10% plus, which means the requirement is growing every year. However despite this the Government decided to allow exports of raw cotton even before the crop arrived. Rains have delayed the crop by 3-4 weeks and arrivals are yet to start in any significant way. But registrations have started and the crop will be allowed to move out of the country from November 1, 2010. They have also decided to allow export of a minimum of 55 lac bales - please read minimum not maximum. (in first 5 days of registration 28 lac bales i.e. 50% of the annual quota has been applied). The Agriculture Minister has gone on record that in December they may increase the quota to 80 lac bales leading to further fuelling of prices.
Why throw away our competitive advantage in textiles?
We are always worrying about us losing out to these countries in value added exports of garments as they have certain advantages against us like lower wages, lower power costs, lower interest rates etc. We would not need to worry so much and face falling garment exports if we were not exporting our competitive advantage raw cotton at lower than international prices. Even for basmati rice, Government allows exports at a Minimum Export Price, but in cotton exports have no price or quantity barrier as such. Last season a mind boggling 83 lac bales were exported-even after the Government put cotton on restrictive list in April 2010, licenses were issued and 10 lac bales were further allowed to be exported-why put it on restrictive list if licenses are to be issued anyways!!!