Interview with MM Chockalingam

Face2Face
MM Chockalingam
MM Chockalingam
Chairman & Managing Director
Cotton Corporation of India
Cotton Corporation of India

Cotton production in 2016-17 will be adequate to meet the demand of the textile industry of India

Cotton Corporation of India (CCI) is a cotton trading organisation under the administrative control of the ministry of textiles, engaged in diverse activities related to procurement, trade and export of cotton. In an exclusive conversation with Fibre2Fashion, CCI's CMD (I/C) MM Chockalingam talks about the major problems with the cotton sector of India and its performance in the current crop season.

Please tell us about the CCI cotton supply scheme that was recently approved by Union textiles minister Smriti Irani.

After discussions with various stakeholders in the textile industry, the ministry of textile directed CCI to offer a uniform sales policy, particularly for helping the small scale industries. Accordingly, CCI worked on its sales terms looking at the commercial aspects and revised the same by considering the interest of the Micro Small and Medium Enterprise (MSME) unit mills. 

Accordingly, CCI offers its cotton stock throughout the season through e-auction without any hoarding and speculation so that textile mills including MSME units do not face any problem for supply of cotton. For making the sales system more transparent and market driven, CCI commenced the sale of FP cotton bales through e-auction by way of Yankee auction where the buyer has the choice to bid for the required quantity out of the total quantity offered. As of now, aggressive buying is not required by CCI as textile mills and traders are purchasing after giving very good price for cotton bales in turn farmers are getting attractive price for their kapas. The salient points of revised sales terms are as under:

  • Mill buyers will have to pay a refundable security deposit of Rs 2,00,000 and cotton traders will have to pay a refundable security deposit of Rs.4,00,000 for participation in e-auction of CCI. However, MSME units enlisted with Office of Textile Commissioner, NTC and Co-op Spg. mills are exempted for paying security deposits for participation in e-auction.
  • Except MSME units, other buyers are required to pay a minimum amount of 15 per cent of the value of cotton towards deposit for sale quantity up to 2,999 bales and 20 per cent of the value of cotton towards deposit for sale quantity of 3,000 bales and above. However, for MSME units, a minimum amount of 10 per cent of the value of cotton is required to pay towards deposit irrespective of sales quantity. 
  • The total free period will be 45 days from the date of contract irrespective of the quantity purchased, as against earlier policy of quantity linked free period and MSMEs getting lesser than 30 days free period.
  • The buyer or its representative shall select the cotton under this contract within a period of 15 days from the date of sale confirmation irrespective of quantity purchased.

The Cotton Association of India has opposed textile industry's request to the government of directing CCI to procure cotton in the peak season and retain it as buffer stock. What is your take on this?

The Cotton Association of India (CAI) and other agencies oppose buffer stocks by CCI as India is a cotton surplus country where production is more than consumption and in such a scenario, buffer stock is not at all required in India to ascertain cotton security in the country. The ministry of textiles took this issue of CAI positively and discussed it thoroughly. During the discussion, it was observed that in India, big and financially sound mills maintain at least two months inventory to cover their lean season requirements and also have the option to import cotton as per their requirement.

However, small mills depend on Indian stocks and consume as per their immediate requirement. In this regards, it was concluded that instead of creation of buffer stock a strategic procurement under commercial operation can also work as an instrument for price stabilisation. Thus, the ministry allowed CCI to purchase 15 to 20 lakh bales under viable commercial operation. Besides this, it also advised CCI to keep close watch on market situation and intervene to arrest any price distortion to stabilise the market by offloading these strategic stocks. Accordingly, looking at the bleak chance for undertaking MSP operation during 2016-17, CCI has started procurement under commercial operation from December 17, 2016.

I feel that commercial buying of cotton has helped the cotton farmers by purchasing their produce at prevailing market rates continuously on one side and to provide the quality cotton security to the textile industry including MSMEs during lean season on the other side. CCI will offload these commercial stocks for the domestic textile mills including MSMEs as per market situation. This will help in reducing price distortion and maintaining the kapas rate reasonably higher than Minimum Support Price to help cotton farmers.

What are the major objectives of CCI?

The broad objectives of CCI are -
  1. To undertake price support operations, whenever the market prices of kapas touch support prices announced by the Government of India, without any quantitative limit
  2. To undertake commercial operations only at CCI's own risk
  3. To purchase cotton to fulfil export commitments as per its MoU targets with the ministry of textiles.

What are your responsibilities as the chairman and managing director of CCI?

As CMD(I/C) of CCI, I am responsible for the efficient functioning of the corporation for achieving its corporate objectives and performance parameters by managing both short and long term corporate plan, purchase/sales policies and other programme and activities of the corporation within the broad framework of guidelines laid by the Government of India.

After setting up of CCI in July 1970 and appointment as nodal agency for undertaking price support operations in cotton in 1985, the responsibilities of CMD has changed manifold in current era. Earlier, CCI was enjoying a sort of monopoly in its all activities of purchase and sale of cotton. Government was allocating special quotas to CCI for export of its cotton. CCI was exporting cotton with good margin against their allocated quota. Over the years, quota systems were abolished and entry of MNCs in cotton business in the country made the market more competitive. Today, the cardinal rule for the businesses is to undertake business activities in a more transparent way on market driven rates with maximum speed and efficiency. As a result, the responsibilities as a CMD of CCI has become more challenging to sustain in most competitive environment by undertaking commercially viable operations to earn the overheads and making the corporation profitable.

In addition to achieve the main objectives of the corporation, as CMD CCI, is responsible to keep close watch on the market situation for taking decisions on strategic purchase of cotton with limited infrastructure to protect the interest of large section of cotton farmers and offloading of these stocks to curb price distortion and ensure cotton security to the domestic textile industry including MSMEs on market driven rates at most competitive sales terms at right time.

What measures have been adopted by CCI to help the cotton farmers of India?

As per the directions of the ministry of textiles, CCI has adopted various measures to help cotton farmers in the country:

  • Being a nodal agency of the government, CCI undertakes MSP operation in the event when prices of seed cotton (kapas) touches the MSP level to procure entire quantity of kapas offered by the cotton farmers in various APMC market yards at MSP rates without any quantitative limit. CCI has opened sufficient number of centres all over India to cover maximum cotton arrivals and remain active in the market from the beginning till the end of cotton season to keep the market situation on close watch and remain in readiness with necessary infrastructural arrangements to meet any eventuality to undertake MSP operation to ensure remunerative prices to the cotton farmers.
  • It has always been the endeavour of the CCI to propagate the cotton farmers for selling their produce directly to CCI through APMCs whenever cotton prices touch the minimum support level. Besides this, with a view to enable the cotton farmers to avail the full benefit of MSP, CCI also disseminates necessary information through advertisements in the newspapers and displaying the banners in APMC yards in local languages to avoid distress sale of cotton by farmers. CCI ensures timely payment of kapas purchased by the farmers through RTGS directly into their bank account to avoid involvement of middlemen.
  • When it came to the notice of CCI that middlemen are selling cotton in APMCs in the guise of farmers, it initiated modification in the systems and procedures of MSP operation by insisting state governments to introduce the bar-coded identity cards for farmers particularly in the state of Telangana and Andhra Pradesh to ensure transfer of benefits to real farmers and avoid involvement of middlemen. This system has become a model for other states also.
  • CCI helped the farmers by undertaking a number of developmental activities to increase the cotton yield and income to the farmers through contract farming, front line demonstrations, supply of mechanised handheld kapas plucker machine to farmers under CSR activities, sale of cotton bales and cotton seed through market driven e-auction in such a way that it does not adversely affect domestic cotton market.
  • As different stakeholders were giving different feedback for cotton area and production in the country, it was very difficult to assess the actual supply position of cotton in India. Thus, as per directives of the ministry of textiles, CCI is actively coordinating with National Remote Sensing Centre (ISRO, Hyderabad) for implementation of space technology based tools for scientific assessment of cotton crop through real time data. After successful implementation of this system in all the states, the actual position of cotton crop could be ascertained and necessary policy decision may be taken to balance the demand and supply position in the country, which will help in maintaining a balance in cotton prices and farmers will be able to get much more remunerative prices than MSP.

Published on: 24/01/2017

DISCLAIMER: All views and opinions expressed in this column are solely of the interviewee, and they do not reflect in any way the opinion of Fibre2Fashion.com.

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