Duty waiver will ease supplies, may not help cotton prices: Industry

Group representing farmers protests government dropping customs duty on imports, calls it disastrous

The decision by the government to waive Customs duty on cotton imports until September 30 might not have a long-term impact on prices. International markets have firmed up further after the waiver, while global logistical problems will keep prices supported.

Trade and industry players expected cotton prices to soften around Rs 5,000-6,000 per candy (1 candy is 356 kilos, or kg), following the easing of imports.

India is expected to import around 2-2.5 million bales (1 bale is 170 kg) of cotton in the current season (October 2021 through September).

Of this, trade sources said nearly 400,000-600,000 tonnes have been imported until March 31.

Contracts for 800,000 bales had already been entered into before duties were slashed. Therefore, the balance is expected to be imported at zero duty.

How far it will have an impact on the landed price of imported cotton remains to be seen. After the announcement of the waiver on import duty, world cotton prices on the Intercontinental Exchange’s — the centre of global trading in ‘soft’ commodities — near-month futures jumped 5 per cent to 145 cents per pound, nullifying the price impact for importers.

Cotton attracts 5 per cent basic customs duty and 5 per cent agriculture infrastructure development cess. Cotton is expected to be imported largely from Australia, the US, and West Africa. “Cot­t­on prices will remain supported despite the duty waiver as international logistics issues linger,” said a trade official.

Prices of Shankar-6 cotton — a benchmark for exports and widely used for variety — were inching closer to Rs 1 lakh per candy before the duty was slashed.

The industry is of the belief that prices will not come down, but may ease the availability of the product.

“An artificial demand was created by hoarding cotton. Prices of cotton increased as a result, from Rs 45,000 per candy to Rs 90,000 per candy. Cotton players were raising prices, particularly distressing small players. The decision will normalise that,” said Raja M Shanmugham, president, Tiruppur Exporter’s Association.

Shankar-6 cotton was seen between Rs 91,000 and Rs 95,000 per candy for major variants, while imported price of commonly used ICE cotton, including cost, insurance, and freight, was between Rs 87,000 and Rs 88,000 per candy, said industry sources.

“This is a welcome move, although it came two months late and a lot of damage to the value-added industry had been done. Prices will not come down, but availability will be ensured,” said Sanjay Kumar Jain of Delhi-based TT, which has its main manufacturing unit in Tamil Nadu’s Tiruppur.

Industry players like Jain are seeking stronger short-term measures like stock disclosure, tightening MCX trading norms, and giving strong signals to stockists who need to flush out their cotton, given it’s a matter of survival for micro, small, and medium enterprises.

“The impact will be marginal as cotton prices may come down by a maximum of Rs 5,000 per candy, while drop in yarn prices will be a minimum of Rs 5-15 per kg. Until August or September, cotton prices will be somewhere between Rs 80,000 and Rs 90,000, whether domestic or imported,” said K Venkatachalam, chief advisor, Tamil Nadu Spinning Mills Association.

A matter of relief for the industry because of the decision is expected to be improved domestic arrivals. Between October and March, cotton arrivals were seen down by at least 25 per cent.

However, farmer bodies like the All India Kisan Sabha (AIKS), affiliated to the Communist Party of India, condemned the decision. “This decision will spell disaster for cotton farmers who are unable to realise remunerative prices. There is no protection guaranteed to the cotton farmer in the form of assured procurement at remunerative prices — at least one and a half times the cost of production. Inflow of raw cotton will lead to a further crash in prices in the absence of effective price stabilisation,” AIKS said in a statement.