The Government is again under pressure from the domestic textile mills lobby to ban raw cotton export. A subsidy on exports last year had put the mills under a great disadvantage, as they had to pay more for cotton than their competitors overseas. That subsidy was unwarranted—it only enriched some trading intermediaries, not growers--but there is no justification either for the ban wills want on exports for cotton availability during the 2009-10 season is estimated to be large, leaving a decent amount of export surplus after meeting all of the mills’ needs. The adverse effects of an embargo on raw cotton export would be incalculable and may take a long time to correct.
What would a ban do? First, it would surely cause farm-gate prices to depress and hurt cotton growers’ interests. This should be avoided at all costs. A brisk marketing activity alone can ensure that prices remain friendly to growers. Exports have ensured remunerative prices to growers and encouraged them to expand and consolidate the production base. No wonder, cotton is an exceptional success story in an otherwise enervated Indian agriculture. Next, in the last four years, cotton exporters have cultivated overseas markets many of which have now come to depend on supplies from India. Indian cotton has now begun to make its international presence felt. These gains should not be frittered away. Will a ban on cotton exports help textile mills? Not necessarily. While the mills may be able to purchase their raw material at lower prices, there is absolutely no guarantee that lower cotton prices by themselves would change the economics of the industry that is plagued by operational inefficiencies. Their global competitiveness is undermined by a host of reasons including poor supply chain management and poor scale economies. More recently, global economic slowdown has been a contributory factor.
What prevents the mills from sourcing their annual requirement during the peak arrival period when prices remain soft to steady is anybody’s guess. The Government should tell the industry to first put its house in order before seeking policy changes that would do more harm than good. As cotton exports are allowed liberally, so too are cotton imports. Nothing prevents users from importing cotton at zero-duty — about 7-8 lakh bales are imported annually anyway. While it would surely be inadvisable to tinker with the extant export policy for raw cotton, one must hasten to add that such exports can and must take place on merits, based on market price parity and without any special incentives for export promotion.
Source : Business Line