Cotton has been in the news, quite prominently, of course, for wrong reasons. According to the industry sources, there has been runaway increase in cotton prices and the textile sector is on the verge of collapse because of the crisis it faces on account of steep rise in cotton prices, which shot up by 35% during the last one year, aggravated by disappearance of cotton from the market because of speculative operations of international traders.  According to P.D. Patodia, Chairman of confederation of Indian Textile Industry (CITI), "The textile and clothing industry is gong through a serious crisis because spiraling increase in cotton prices and unabated increase in prices of cotton, will be deleterious to the economy in general and the textile sector in particular, which has already eroded its exports competitiveness on account of appreciating rupee.  The serious of onslaughts being faced by the industry will cripple its growth and employment generation potential."

Recently, CITI had organized a press meet to highlight the plight of Indian textile mills, in which I also participated. It was addressed by a number of functionaries as also office bearers of South India Mills Association. It was pointed out that some of the mills have already closed down while others are on their way to closure. It is understood that the steep rise in cotton prices has brought 20 mills to closure in the last six months.  These bills, which boasted of a capacity of 25,000 spindles and above, had more than 20,000 employees, who have been rendered jobless. These mills included Ashok Textiles, Chakola Spindles, Western India Cotton Mills, Vanaja Textiles, Sri Bhagavathi Textiles, Rajgopal Textiles as well as Madras Spinners.

Why have we reached the crisis level?

There are a number of factors at work. These are primarily the short availability of cotton, high interest cost, and above all, the unbridled cotton trading by international players.

Short Availability of Cotton

There is an apparent short availability of cotton in the market today. It might generally be presumed that it is because of lower productivity levels of Indian cotton production or lower overall production of cotton in the country.  It is true that all-India per hectare yield is estimated at 553 kg per hectare for 2007-09, which is a positive improvement over 520 kg per hectare in a year before. Yet it is much lower than the world average of 765 kg per hectare. In spite of our having the highest total area under cotton cultivation in the world, we are still number two in our total production.

However, in term of actual production of cotton, we are not that badly placed. In fact, this year we expect a total crop of 31.5 million bales (each of 170 kg each), which was only 24.4 million bales in 2005-06 and 27 million bales in 2006-07. Of course, the industry needs some 27.8 million bales, which should have been more than enough for the industry to meet its requirement.

But unfortunately, there has been an unrestricted export of cotton, which according to the "estimates" of the Ministry of Textiles, is of the order of about 6.5 million bales, but the trade bodies (again) "estimates" that the cotton exports this year would not around 10 million bales. Thus out of the total production of 31.5 million bales of cotton, export of 10 million bales would leave us with only 21.5 million cotton bales for the textile industry against our expected consumption of 27.8 million bales. There is an apparent short availability of cotton.

High Prices of Cotton

There has been an unprecedented increase in the cotton prices in the country, which registered an increase of over 35 per cent during the last one year. This is going to seriously affect the operations and even production of textile mills, which, despite slow down in exports due to appreciating rupee, could export textiles worth $ 20 billion. But with the closure of mills and serious financial burden on the mills on account inflated purchase bills of the cotton, the textile exports are likely to be impacted. This point has specifically been made out by CITI to the concerned ministers of the Government of India, including Ministers of Textiles, Finance and Commerce. The price trend as reflected in their movement from January 2007 through June, 2008 has been set out hereunder: