Cotton's Tug of War
Cotton’s economic outlook is extremely dependent on the underlying macroeconomic assumptions. India's policy change always affects the outlook. Last year, the government announced an increase in cotton’s Minimum Support Price of 35 to 40%. However, as market prices declined, the government became the buyer for much of their production. There always is an ongoing debate between the various segments of India’s cotton industry as to the appropriateness of the higher support price. India’s export prospects are complicated by the current support price. With the higher support price, production in India is generally expected to be maintained near current levels. Some predicted that with only a slight recovery in mill use, India could return to the world market as a more significant exporter. Now, that the price is on a runaway growth, the mills are up in arms, screaming for immediate measures to curb it by temporarily suspending the registration of export contracts. The mills demand that the high level of registration of export contracts has to be viewed against the backdrop of high pitched speculation in international trading carried out by a handful of international commodity traders who are making huge profits leveraging on the possible decline in the cotton production globally. The industry fears that a similar meltdown that happened in the financial and oil markets in the recent times should not be repeated in cotton too.
The mills lobby feels that if calibrated export of cotton from India is undertaken, it will not affect the remunerative prices being given to the farmers since the demand for cotton in the coming months and years will be much more than what it is now. It is seeking to ship only the exportable surplus and consider it not as a regulation but as a well-accepted principle followed by several countries including the most developed ones. Such a move will boost the favourable sentiments in the economy and do good for the common man since it will contribute to make available affordable clothing and also create employment. The Government should analyse the situation and announce balanced measures so that the outcome of this tug of war is fair and fine.