DGFT may curb cotton export application quantity

The Directorate General of Foreign Trade (DGFT), responsible for monitoring smooth shipment of 1 million bales (1 bale = 170 kg) of additional cotton exports, has framed stringent guidelines for export applications, likely to be announced soon.

Trade sources say DGFT would restrict registrations to genuine exporters and cap on maximum application quantity at 100,000 bales. This is unlike the earlier round, when there was no such bar on application quantity and many opportunistic exporters applied for even 1 million bales.

Earlier, the government had capped cotton exports at 5.5 million bales. However, the agriculture ministry had opposed the cap, arguing that production was more than consumption this year. As a consequence, DGFT, according to sources, received applications for over 40 million bales.

Since the scrutiny of all applications was difficult, DGFT allotted a random 10 per cent of applied quantity to all applicants. Those who applied with genuine quantity of stocks and orders, therefore, were left behind in the process and many fresh entrants successfully obtained permission for exports.

A number of irregularities were found later, with inexperienced traders passing on the permitted quantity to perennial exporters at a cost.

Since cotton prices were high overseas, Indian exporters were eager to make maximum possible profits through shipment of the textile raw material. Overseas demand was also very high. Now, cotton prices both in global and Indian markets have fallen 33 per cent since the beginning of this year and demand has also declined due to cheaper replacement substitutes. Only real exporters will be able to make a dent this time, a trader said.

“Other than some stringent guidelines, the government is believed to have put a cap on application quantity, which is very new,” said M B Lal, ex-chairman of Cotton Corporation of India and managing director of Mumbai-based Shail Exports. According to an industry official, many trade associations have met DGFT officials with demands to restrict the maximum application quantity of 100,000 bales. Although, the consultations are still on, the government is believed to have met the industry’s demand in the interest of cotton exporters.

Genuine exporters are happy with this proposed guideline. The textiles ministry had opposed easing the export cap on the grounds that cotton production in 2010-2011 was estimated to be 31.2 million bales, down from its earlier estimate of 32.5 million bales. However, its objection did not find much support.