Ban on cotton exports

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Bikky Khosla | 24 Nov, 2009
The ongoing tussle between the government and the textile industry over the latter's demand on an immediate ban on cotton exports needs to be solved immediately. Although the centre is of the view that production is enough to meet the demand of the mills, the textile industry believes that with indications of a global economic recovery, export prospects will increase and thus the need for cotton will go up. Meanwhile high level of export contracts and rising price of domestic cotton are already eroding the competitiveness of the industry.

When I look into the issue I find that there is more to it than meets the eye. Politics has always played an active role in the decisions of our authorities and this time too it's no different. Cotton is a very sensitive issue and governments have been made and brought down with this issue. Spanning across 10 different cotton-growing states, the crop has far-reaching implication on political calculations.

The hike in minimum support price (MSP) of cotton in 2008 by over 40 percent is one instance where the decision came solely from the point of view of politics. And what preceded was that the Cotton Corporation of India (CCI) procured the crop at high prices and subsequently the market prices tanked. The government ultimately had to come to the aid of CCI.

This season (2009-10), cotton arrival stood at 3.8 million bales of which, 2.3 million bales have already been booked for exports. So the industry's calculations have already gone haywire.

Having said that, the welfare of the farmers need to be taken into consideration -- there is no doubt about it. But are exports really in the interest of the farmers? The answer is, no. Farmers are being paid the MSP and whether the cotton is exported or used for domestic consumption doesn't matter at all. The farmer's interest lies in consumption not exports.

It is the traders who are benefiting due to increase of cotton prices in the market through speculation and that too at the cost of both the farmers and the textile industry. Already rising cotton prices and consequent increase in fabric costs are taking a heavy toll on exporters.

In the past couple of months I have met several exporters who have been forced to cut production and honour contracted quantities even at a loss because of high fabric prices. I believe it's time the government takes steps to control cotton prices with an eye on the economic situation rather than on political gains.