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Cotton market in contradiction
Jun '08
High prices of cotton in the international market have set the entire chain of domestic industry through a maze of speculation, inflation and paucity in the past one year which in turn has resulted in growing dissatisfaction among textile manufacturers.

While on the one hand, soaring prices of cotton yarn left fabric manufacturers dumbfounded, on the other, export of quality cotton from the country saw an unbridled expansion. At such an exorbitant rate, it was impossible for textile manufacturers to sustain operations. Hence the wave of shut downs that followed in the period were not only obvious but had valid justifications.

To add to this already crushing situation, hoarding of cotton by ginners to get better returns and unscrupulous practices of middlemen have also played a significant role in hiking yarn prices.

Had there been a scarcity of cotton in India, the rise in prices and the related consequences could have been explained. But what could be said about a situation where it achieves a record high cotton production of 325 lakh bales (2007-08) and still ends up importing cheaper cotton from Africa due to a shortage?

The problem lies in the fact that despite unreasonably high prices for the raw material, domestic cotton still stands cheaper when compared to those available in the international market. Prices of Indian cotton ruled at Rs22,300-22,600 per bale in the month of April 2008, still remaining lower by around Rs2,000 per bale compared to the prices prevalent in America and China due to decline in world production. Not surprisingly, therefore, Indian cotton created a huge demand overseas.

Quite evidently, Indian exporters made the most of this opportunity to reap greater profits. However, increased exports did even greater damage to the country than inflation could with its mounting prices.

Despite rise in export of cotton and increasing inflow of revenues, the real advantage in terms of profits coming from value-added products, was being accrued by our competitors. This is because export of valuable cotton raw material to countries like China and Pakistan brought umpteen employment opportunities to their respective downstream industries rather than to India.

So while importing countries kept benefiting by drawing cheap and qualitatively better cotton for expanding their respective textile industry, the domestic market itself succumbed to paucity and over-the-top prices of raw material.

No matter how ironical the situation may seem, it has already left a scarring impact on the cotton production front. The cultivable area reduced from 25.2 lakh hectares in 2006-07 to 22.4 lakh hectares in 2007-08. Besides, rising prices brought profits to middlemen instead of farmers forcing them to switch over to producing oilseeds and other cash crops which ascertains better margins.

The only resort to such glaringly contradictory situations is to increase production through BT cotton seeds and restrict excessive exports. Moreover, Government intervention by way of reducing import duties on inexpensive cotton from Africa and stabilizing price fluctuation could also go a long way in bringing domestic market out of these chaotic circumstances.

Fibre2fashion News Desk - India

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