Putting cotton export under OGL premature decision - SIMA

13 Sep '11

5 min read

The growth and performance of the predominantly cotton based textile industry is often being subjected to wrong policies on cotton front from February 2008, after the removal of cotton textiles from the Essential Commodities Act. Apart from free export under OGL, the various incentives offered to the multinational and other larger cotton traders including 5% export incentive with retrospective effect, DEPB benefit, bulk discount and liberal credit norms by CCI, etc had serious impact on the textile industry during the global recession and also the current cotton season.

The premature cotton export announcement made by the Commerce Minister for the season 2010-2011 and subsequently issuing a notification to export the entire earmarked quantity of 55 lakh bales in 45 days during the peak season flared up the price from Rs.38,000 per candy to Rs.63,000 per candy in three months.

Fearing that the Government might allow additional quantity for export resulting in shortage of cotton, textile mills procured cotton at over Rs.60,000 per candy which later crashed to Rs.30,000 per candy making the spinning mills to incur over Rs.6,000 crores loss in just four months. In addition, the heavy accumulation of yarn stock caused due to suspension of yarn export registration for four months made the spinning mills to incur another Rs.5000 crores loss in the working capital.

Now, the textile industry is pleading for an urgent bail out package to sustain its survival. The Government and RBI are yet to take a decision to revive the industry from the grave crisis. The additional 10 lakh bales of cotton export announcement made by the Government has already increased the cotton price from Rs.30,000 per candy to Rs.42,000 per candy.

In a Press Release, Mr.S.Dinakaran, Chairman, The Southern India Mills' Association (SIMA) has stated that the announcement of allowing cotton export under OGL from 1st October 2011 for the cotton season 2011-12 has come as a serious blow for the cotton textile industry in the country. He has stated that the industry Associations have recommended the Government to permit cotton export under OGL only from 1st January 2012 considering the need for rebuilding adequate buffer stock, enabling the domestic mills to procure adequate quantity of quality cotton and also avoid any speculation during the beginning of the season.

Mr.S.Dinakaran has said that the Association is not against cotton export. But at the same time the Government should benchmark its policies with our major competing countries like China and Pakistan on cotton front and ensure raw material security for the textile industry, which employ over 92 million people directly and indirectly and also consume over 80% of the cotton produced in the country.

He has pointed out that the sowing had been delayed by 4 to 6 weeks due to delayed rain and therefore, cotton arrival in bulk would start only from end of November or beginning of December and the exact crop size would be known only by December. Mr.S.Dinakaran has appealed to the Government to immediately withdraw the notification considering the grave crisis prevailing in the industry and allow cotton export under OGL from 1st January 2012 and also ensure at least 55 lakh bales physical closing stock of quality cotton as already committed by the Group of Ministers.

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