What?s going wrong with COTTON?
Despite India being cotton surplus, the industry is still struggling, opines Sanjay Jain, NITMA President & Deputy Chairman, NITRA. Cotton-based textiles has been the main stay of Indian textiles over decades. India is one of the few nations where textiles is still skewed in favour of cotton (60 per cent) as against the world where man made has a 60 per cent share while cotton is sub 40 per cent. One of the major reasons for this is our large cotton crop grown across 10 states.
Despite India being cotton surplus, the industry is still struggling, opines Sanjay Jain, NITMA President & Deputy Chairman, NITRA.
Cotton-based textiles has been the main stay of Indian textiles over decades. India is one of the few nations where textiles is still skewed in favour of cotton (60 per cent) as against the world where man made has a 60 per cent share while cotton is sub 40 per cent. One of the major reasons for this is our large cotton crop grown across 10 states.
One of the largest and important questions in all sectors of the economy has been ? how much role should the Government have? This question has caught momentum with the liberalisation of our economy in early 1990s. The cotton textile world is no exception, where the debate has been whether the Government should leave the cotton fibre economy on its own ? to grow, develop, stabilise and find its own direction and level.
A country with substantial cotton surplus has a value added industry, which is struggling to even stand on its two legs, surprising but true ? while nations like Bangladesh, Vietnam who have no cotton are flourishing.
In 2013-14, India had its largest ever crop of 390 lakh bales however still for nine months of the season Indian prices were higher than international prices. in 2015-16 prices jumped by 50 per cent in two months and industry had to import, as 20 per cent crop had been exported earlier to competing nations.
Based on the above arguments, we feel that Government like other agricultural crops needs to ensure sufficient availability of cotton at competitive prices to the industry ? otherwise the industry would find it difficult to move up the value added chain and become a large manufacturer of textile products like China, Bangladesh, etc. It could instead be rendered as a supplier of raw material like African, CIS nations.
However it?s important that while meeting the above objectives, the Government does not fall into the following traps:
- The Government like the Chinese should not get saddled with unmanageable levels of cotton stock.
- The cotton quality should not get impacted due to Government/CCI getting into ginning.
- The industry should not be forced to buy cotton at above international prices, and in the process be rendered uncompetitive globally.
- The Government purchase programme to help farmers, should not lead to hoarding of cotton which disrupts market forces.
- There should be no discrimination between small and big players ? both should be on the same footing
- The Government intervention should not lead to unpredictability and uncertainty of supply flow for the industry.
Important initiatives required to be taken
- Allow funding for cotton stocking at subsidised rates of 2 per cent below the base rate for the period October-April, so that industry can stock cotton and ensure farmers get a better price. (otherwise difficult for industry to compete with international traders who have access to low interest off shore funds)
- CCI like FCI should play a constructive role by creating a buffer stock when prices are low and ensure cotton security and price stability (by keeping speculators at bay and ensuring prices are in parity to international prices).
- A system of direct subsidy should be started for farmers when cotton kapas prices fall below MSP. CCI should not get in processing cotton fibre, it should just buy ready and pressed cotton fibre.
- A more scientific and transparent system needs to be formulated urgently for crop forecasts and crop arrival measurement. The same needs to be conducted by an independent agency. This would avoid mishaps of 2013-14 and 2015-16 where incorrect crop estimates lead to huge losses for the industry (as it induced domestic prices going above international prices for a large part of the season)
- Ginners should be made to compulsorily declare their pressing numbers online along with stock figures to ensure arrival data is accurate. All bales must have unique declared press marks.
- Area under cultivation should be scientifically determined using latest forecasting techniques
- Best practices to be picked up from other countries for agro product estimations
- Impose import duty on edible oils to ensure the cotton economics is improved (as 65 per cent of the kapas is seed ? better realisation from the same would improve the farmer?s return without impacting the cotton fibre prices).
- Create a Cotton Board with a clear mission and goal to take India?s productivity to 1,000 kg of hectare grown by 2020. Farmers earnings growth needs to come from productivity and efficiency rather than industry paying more for fibre ? this is only way to protect interests of both farmer and industry. There is good scope for increasing yield if agronomy research is taken up and farmer is given knowledge on precision farming techniques. The farming techniques differ from area to area. The research grant to CICR has been reduced to Rs 100 lakh from Rs 300 lakh.
- Create standards for cotton fibre in terms of moisture, trash and packing to ensure the cotton retains its name of ?White Gold? which has lost its sheen due to man made introduced impurities. Need to put check on Ginners for adulteration
- Create a programme to work on reducing contamination in Indian cotton ? today Indian cotton is losing minimum 5 cents/lbs due to higher contamination levels as against other competing origins like West Africa, CIS, USA, Brazil etc.
- Mandi tax/APMC fees should be applicable only for transactions done through it ? where no service provided, why should the industry be burdened with fee ?
- Import and export data of cotton fibre should be available to industry within a week of the preceding month (as all ports are computerised, the HS Code based data of trade should be readily available).
Summary
Short term: Ensure the Indian industry gets cotton fibre throughout the year at atleast international spot prices i.e. maximum price of Cotlook Index less 3 cents, i.e., cost of transportation, etc.
Ensure sufficient stock to use ratio for cotton fibre so that the industry is not at a disadvantage to its competitors due to cotton, which is India?s biggest strength. Typically India?s stock to use ratio has been very low.
The Government should avoid getting involved in manufacturing process of ginning ? pay the farmer directly the difference between MSP and market price if any.
Long term: To create a comprehensive cotton fibre policy, defining clearly action needed in various scenarios. To create a roadmap to make Indian cotton yield and quality amongst the best in the world. Revamp the role of CCI and CAB to meet the defined objectives.
Today?s status
- India?s crop, which was growing every year (we became the largest in 2014-15) has stagnated/reduced for last two years and is facing challenges of area, yield And Pests ? from peak of 398 lakh bales, we are down to 336 lakh bales
- India surplus cotton has dwindled, leading to competition between exports and domestic usuage, now industry forced to import in end season
- India?s value added industry especially spinning has been suffering despite a strong cotton crop ? highest % slippages to NPAs in 2015
- One of the lowest stock to use ratio in the world ? 12 to 15% against world average of 80%
- Domestic cotton prices are many times higher than international prices
Today?s concerns
The country doesn?t have sufficient surplus cotton, however exports are strong leading to forced imports at high prices at end season ? hence our core advantage is getting eroded
