Higher MSP to reduce consumption of cotton by mills, CITI

25 Aug '08

3 min read

The textile industry of the country is in for an unprecedented crisis in the coming year, thanks to the Minimum Support Prices (MSPs) finalised by government for the cotton season 2008-09. MSPs have been raised from Rs.1800 of 2007-08 to Rs.2500 for medium staple cotton and from Rs.2030 to Rs.3000 for long staple cotton.

Reacting to the press reports on the MSPs for the new season, Shri P.D. Patodia, Chairman, Confederation of Indian Textile Industry stated that the move will not only push the textile industry further down, but will also be counter productive even for farmers.

Shri Patodia explained that the rupee appreciation of 2007 and the increase in raw material prices, interest rates as well as input costs during the current year have already drained out the cost competitiveness of the country's textile value chain and the huge increases announced in the MSPs for cotton would aggravate the situation beyond redemption.

“During the last financial year and the first quarter of this year, most textile companies have made losses and many others have made substantially lower profits compared to the earlier years. These MSPs have eroded whatever hope the industry had of reviving in the near future” said Shri Patodia.

In a statement released here, Shri P.D. Patodia explained that the standard variety of Shankar cotton is currently being quoted at Rs. 24500 per candy for the new crop, and the mills are finding it difficult to buy at this price, because of the industry's current problems. The MSP of Rs.3000 would translate to Rs.26000 per candy for this cotton and this is bound to reduce consumption of Indian cotton by mills.

The only options before the mills will be to import cheaper cotton from abroad, switch over to manmade fibres or close down. “There is going to be chaos both in the industry and farming sectors, unless government is able to take immediate remedial action to sustain cotton consumption by reducing the MSPs or by assisting the industry to absorb the extra cost” he said.

Cotton is the strength and mainstay of India's textile industry and by taking domestic cotton beyond the reach of the industry, government would be seriously eroding whatever level of competitiveness is left in the industry after the series of problems that it has faced in the recent period. Shri Patodia pointed out that at the proposed MSPs, domestic consumption is bound to decline steeply and huge quantities will have to be procured by government.

This will be quite a challenge for government, both in terms of funds and infrastructure for storage. He hoped that the government would approach this issue more pragmatically, not only in the interest of the industry but also the long term interest of farmers themselves and the economy as a whole.

Confederation of Indian Textile Industry

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