Mill owners in the state say the cotton shortage has been caused by a surge in export of raw cotton to countries like China, Turkey and Pakistan.
Tamil Nadu's spinning mills account for nearly 47 per cent of the total spindle capacity in the country. According to Coimbatore-based The Southern India Mills' Association (SIMA), of the installed capacity of 39 million spindles in the country, the utilised capacity is only 30.5 million.
SIMA secretary general K Selvaraju said the export of raw cotton from the country, even by official estimates, has crossed 8.5 million bales in the current cotton year (October 2007-September 2008).
"We think exports are likely to be closer to 10 million bales, even though the benchmark figure suggested by the Cotton Advisory Board for the year is only 6.5 million bales," he added.
Entry of foreign merchants, who buy raw cotton in India for exports to countries like China, Turkey and Pakistan, has been cited as the reason for the shortage of cotton for domestic consumption.
The stock to consumption ratio, which should ideally be 40-45 per cent, has hit an all-time low of 18 per cent this year in the domestic market. Exporters of cotton have booked forward (sale) contracts up to February 2009, according to Selvaraju.
"Shortage of cotton in the domestic market has pushed the prices of popular varieties from Rs 17,000 a candy to Rs 27,500 this year. We know that farmers have not sold them for more than Rs 20,000 a candy.
It is the foreign merchants who have gained from this price surge," the SIMA secretary general said. He added that exports should ideally be only 20-25 per cent of domestic production. A candy weighs 355 kg, which is a standard measure used by cotton merchants.
Against a production of 31.5 million bales a year, domestic consumption in India is around 24 million bales.
Indian mills are also suffering due to the unfavourable export-import tax structure. Selvaraju said while export of cotton receives an incentive of 1 per cent, there is an import duty of 14.3 per cent.
Mills in Tamil Nadu have also been suffering from the shortage of power along with rising labour cost. New state labour policies have pushed the daily wages for mill workers to Rs 230. "In countries like Bangladesh, you can get the same workforce for Rs 80 a day. How can Indian mills compete in the global market?" he asked.
Consistent power supply at lower tariffs is in fact pushing some of the mills from Tamil Nadu to Andhra Pradesh. "A few greenfield plants that could have come up in Tamil Nadu are now being set up in Andhra Pradesh. Some of the mills in Tamil Nadu are even thinking of shifting their bases to Andhra Pradesh now. At least 10-15 such cases are there," Selvaraju said.
"Cotton, power and labour account for 90-92 per cent of our costs. Mills in Tamil Nadu are hit on all the three counts," Selvaraju said.
