Exporters unhappy with additional cotton quota

The decision to allow export of an additional one million bales of cotton this year by the government has not gone down well with the exporters, who termed it too little and too late.

According to Dhiren Seth, president of the Cotton Association of India, exporters had demanded a free trade policy for cotton. “We sought the cotton exports under OGL (open general license) with unrestricted quantity but the EGoM allowed an export of a restricted quantity.”

South India Mills Association (Sima) chairman J Thulasidharan said the government’s decision to increase the ceiling would lead to shortage of cotton for the domestic industry, which could again push up prices, resulting in further glut in the market and abnormal losses.

“This has come as a rude shock to the ailing spinning sector, which has been forced to cut production by 35 per cent to adjust to the supply-demand mismatch caused due to lopsided policies announced by the government, particularly the premature announcement made on cotton export, and also the suspension of cotton yarn export between January and March, resulting in huge accumulation of yarn stocks,” he said.

On Wednesday, a Group of Ministers under the chairmanship of Union finance minister Pranab Mukherjee decided to increase the cotton export ceiling to 6.5 million bales from 5.5 million for the 2010-11 season.

Except for the farmers, other players in the textile chain expected more from the government, as the business is passing through an uncertain phase.

In spinning and garment sector are lamenting the lackadaisical attitude of the government, as there has been no response to their demands.

The demands put up by the industry on duty drawback, 10 per cent excise duty on garment manufacturers, two per cent interest subvention and restructuring of repayment of loans has been kept pending.

According to Shishir Jaipuria, chairman of Citi (Confederation of Indian Textile Industry), the Duty Drawback Committee (headed by Saumitra Chaudhuri, member, Economic Advisory Council to Prime Minister) is expected to come out with its report this month and they expect some positive approach to be taken by the government.

Cotton exporters across India contend that due to a good monsoon and increase in area under cultivation, the crop is likely to be better this year. The export quota of 5.5 million bales that was allowed in October 2010 was exhausted in three months and exporters had been demanding a revision in quota since January.

Due to the low offtake by spinning mills, traders were flush with cotton stock, which they said was difficult to retain after the new crop arrives in October this year.

There is an estimated stock of 4.5 million bales of cotton with traders and 1.5 million bales with farmers (in the states of Maharashtra, Gujarat and Madhya Pradesh).

Spinning mills in India slowed their production early this year due to low demand in the international market. Sources in Cotton Corporation of India confirmed that there was sufficient stock and demand from the spinning sector was sagging due to sundry reasons.

The industry may not be contented but farmers are sanguine over the government’s decision on exports. Growers in Punjab and Gujarat said if they get a return of Rs 4,000-4,500 a quintal on raw cotton, they would earn good profits. The price of cotton is about Rs 49,000 a candy (1 candy=170 kg) in the international market and it is lucrative, one of the traders said.

So, the additional exports suit cotton growers and traders. EGoM could not please the spinning sector but farmers are happy, as the revived sentiments would help them get better remuneration.