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Cotton has to be exported, but how much? - CITI
30
Jul '08
D.K.Nair, Secretary General, Confederation of Indian Textile Industry (CITI) comments on Govt rules out imposing ban on cotton exports. India is the second largest producer, consumer and exporter of cotton in the world. It is also one of the largest producers and exporters of down stream cotton textile products.

There is an acute shortage of cotton in the world markets this year, whereas India harvested a bumper crop. In spite of a 10 percent increase over last year's production, which itself was an all time high record until then, cotton prices in the country increased by over 35% year-on-year, because exports also registered an all time high record of nearly100 lakh bales as against 58 lakh bales last year. We export more than half of our total production of cotton textiles and with a demand recession in international markets, our textile exporters are not able to pass on the increase in cotton prices to the buyers.

Viewed from this overall perceptive, the choice is between uncontrolled exports of cotton and competitive exports of textile products. The textile industry, which is just recovering from the rupee appreciation problem, cannot absorb the present level of price escalation in cotton and continue to export. So, the question boils down to whether we should do maximum value addition to our cotton within our own down stream industry and generate wealth and employment within the country or export one third of our crop to China and Pakistan, which are the toughest competitors for our cotton textile products in the international markets.

Ironically, China is the largest exporter of textile products to India and Pakistan is among the largest, especially in home textiles. When we export cotton to them, we are exporting textile jobs and when we import textiles from them, we are importing unemployment.

The interest of farmers is another perspective from which this issue should be viewed. To what extent do they benefit from uncontrolled cotton exports? It is common knowledge that farmers do not export cotton. Our cotton crop starts arriving in the market by October and most of it is sold by farmers by February-March. A careful examination of the price trends of cotton will show that most of the increase in prices occurs every year after March, when the cotton is already in the hands of ginners and traders. Thus, farmers get only a limited share from the increased cotton prices.

Cotton prices do not really depend on exports of cotton. They are driven by consumption, whether by the domestic industry or by international industry. Cotton consumption in India has been increasing substantially and with huge investments going into the spinning industry in recent years, this trend is bound to continue. Thus, the danger of low consumption driving prices down does not exist.

Government has been carefully examining the cotton economy and announcing Minimum Support Prices for cotton every year, on the basis of its assessment of price levels that would ensure reasonable remuneration to farmers. Cotton prices in the country have been substantially above the MSPs for several years now. So long as cotton consumption in the country keeps on growing, cotton prices will also keep increasing, irrespective of the quantity of cotton that we export.

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