Textile industry seeks curbs on cotton exports as prices surge.

Prices of domestic cotton lint shot up to a historic high, slightly above international rates, prompting the textile industry to plead with the government to re-impose trade restrictions on the commodity in the new season that starts in October.

Earlier this year, the commerce ministry had removed cotton from the restricted goods list, resulting in unprecedented quantities of stock leaving the country and sparking the textile mill owners’ call.

Spot prices of Shankar-6, the country’s most popular variety, zoomed 27% to Rs.38,000 per candy (a unit of measurement equal to 355.6kg) on Thursday just before the market closed for the Id holiday. In August, prices were at Rs.29,800 per candy.

The contentious issue of cotton shortage has seen heated debate in recent months with a group of ministers appointing the Cotton Advisory Board—comprising experts, industry gurus and farmers—to fix a limit on the exportable surplus. The board fixed this at 4.95 million bales to ease supply for domestic textile mills. A bale is equivalent to 170 kg.

Between October 2009 and September, India produced 29.5 million bales of cotton, says the board. About 8.3 million bales were shipped out of the country, mostly to China.

On the Cotlook Index FR (Far East) on Thursday, the commodity was 99.30 cents per pound against the Indian spot price of 102.56 cents per pound in the trading hubs of Gujarat and Maharashtra, said Inder Jit Dhuria, corporate general manager of the Rs.4,000 crore Vardhman group.

“Apart from low opening stock, which is pushing up prices, costs are likely to go up further if raw cotton has to be transported to different consuming centres,” said Dhuria. Additional costs include 2% Central sales tax and freight costs of Rs.3 a kg, he said.

The Confederation of Indian Textile Industry (CITI), an industry lobby, has maintained that despite the Cotton Advisory Board’s proposal to limit exports, the government has no policy to do so as the commodity is under the open general licence.

“The government doesn’t have the mechanism to ensure that the board’s recommendation will get implemented as cotton can now be freely exported,” said D.K. Nair, CITI’s secretary general.

Last week, commerce secretary Rahul Khullar said at a press conference that shipment beyond the stipulated limit of 5.5 million bales will attract “prohibitive duties”. The matter will come up for review again in mid-November, he said.

Last year, India exported $20 billion (Rs.93,200 crore) of textile goods such as garments, fabrics and made-ups, of which 75-80% was cotton. But the industry has been hamstrung by labour supply, creaky infrastructure and high power costs. Reasonable cotton prices could have offset these disadvantages, Nair said.

Excessive monsoon rain, which is delaying stock arrival in the local markets, and the destruction of crops in flood-ravaged Pakistan, are said to be the main causes for the galloping prices, which haven’t abated since October.

India exports most of its cotton to China, Pakistan, Bangladesh and Indonesia. Both China and Pakistan grow cotton, but do not export it. Bangladesh and Indonesia do not grow the commodity commercially.

This makes India an exception, said D.K. Nair. “Both China and Pakistan grow cotton on a large scale but ban exports to feed their own textile industry,” Nair said.

Dhiren Sheth, chairman of Mumbai-based Cotton Association of India, a traders lobby that fixes representative domestic rates for cotton, said: “Prices are rising because yarn prices are high, which means mills have the capacity to pay.”

It had earlier urged the government to raise the export limit to 7.5 million bales, according to news reports.

Source : livemint.com