The Central Government is considering removing therestrictions on the export of cotton yarn from the coming October. This has putthe domestic textile industry in a state of flux.

Prices of cotton and cotton yarnshowed a steep rise during the recent past increasing by 25% since October2009. Representations were made to the Government requesting for a ban in theexport of cotton, and cotton yarn. High incentives that were given to theexports of raw material were also expected to be withdrawn, thereby restrictingthe huge volume of exports.

The Government imposed a rulerestricting exports of cotton earlier in April 2010. On an average 73 lakhbales of cotton were exported during October 2009-April 2010. Restriction wasplaced of cotton exports with a view to hold on to the cotton cultivated in thecountry, and ease the domestic prices. This was positively believed to bringprice control in the domestic market. Later in July 2010, the Governmentpartially lifted its limits on cotton exports allowing only the registeredexporters to ship. Currently, the Government is considering removing therestrictions on the export of surplus cotton yarn produced that is over and abovethe required quantity. Good crop prospects for 2010-11 have also motivated theGovernment to consider in removing the restrictions.


Eliminating the Restriction -the other side:


Spinners, anticipating hugevolume of exports have augmented yarn prices, registering a sharp increase.This would have serious implications in the domestic weaving industry. Spinningmills would normally give more preference to exports of cotton yarn. This wouldlead to an increase in the prices of cotton yarn in the domestic market, whichmight cause many weaving units to shut down. Ultimately it would jeopardize thejobs, and livelihood of lakhs of workers in this industry.


Textile mills normally keep astock of raw material required for 30-45 days of production, and smaller millskeep a stock of 20-30 days. Relaxing the exports will be a hit on theindustrys performance as majority of the good quality cotton yarn will beexported and the domestic industry would be deprived of it.


Industry analysts observe thatthis move would benefit neither the farmers, nor the domestic textile industryas increase in the raw material prices would ultimately affect the end productsin the price driven export market. They feel that the security of the rawmaterial for the entire textile value chain is facing a threat. Furthermore,the declaration of bringing cotton under the Open General License category evena month before October has encouraged businessmen for a speculative trade whichhas also caused an increase in cotton yarn prices.


The domestic textile industrybelieves that allowing premature export of cotton would cause disaster to theindustry. They expect the Government to calibrate the relaxation, and prolongit for an extended time.


References:


1.       &sec=article&uinfo=<%=server.URLEncode(2904)%>" target="_blank">http://www.thehindu.com

2.       &sec=article&uinfo=<%=server.URLEncode(2904)%>" target="_blank">http://economictimes.indiatimes.com

3.       &sec=article&uinfo=<%=server.URLEncode(2904)%>" target="_blank">http://www.financialexpress.com

4.       &sec=article&uinfo=<%=server.URLEncode(2904)%>" target="_blank">http://www.cmemarkets.com