Despite being the world's second largest producer of cotton, India is likely to meet a shortage of cotton. What are the reasons, and what can be done about it?
Indian textile industry is witnessing a demand in textile items, and this is expected to trigger the demand for cotton. Government's decision of allowing cotton exports is evoking a negative reaction among industry players. Exporting huge quantities of cotton would force the domestic players to import cotton from the global market at higher prices.
11million bales are exported so far, and it is further expected that India would be able to ship approximately up to 2 million additional bales of cotton reaching a record of 13.5 million bales. This is almost 54% higher than the figures of 2007-08 which was 8.8 million bales. (Source: economic times).
Domestic cotton consumption is estimated to be around 25.2 million bales, and consumption for the corresponding period of the previous year was 26.7 million bales. Domestic textile industry would require importing roughly around 2million bales to meet the requirements of the current year. Though the total imports depend on the lean season demand from textile mills; volume of imports is expected to be more due to less availability in the domestic markets. Imports are estimated to be around 0.6 million bales for the year October 2011 September 2012. Imports for the corresponding period of the last year were 0.5million bales.
Would the exports harm the Indian textile industry?
Lifting the ban for cotton exports is feared to create a serious shortage in the domestic industry in the coming months. There is likely to be an increase in the demand for cotton in the near future. Exporting huge volumes of cotton at such a time will force the domestic players to import cotton from global markets which may prove to be expensive. Majority of the cotton from India are being exported to the Chinese markets. Exporting cotton to China at competitive prices is believed to transfer the cost advantage to Chinese textile industry.
Business standard reports V Y Tamhane, Secretary General of Mill Owners Association, saying, "The way the rupee has fared in the past few months, imported cotton would be costlier than the realization on export from India. Hence, not only cotton and yarn prices would go up, but the cost of readymade garments would also shoot up sharply. "
Earlier when India imposed a ban on the cotton exports, garment makers who were hit by the sluggish demand of the US and EU markets appreciated it. The ban raised global prices, but restricted prices at the domestic market. Revoking the ban is stirring up anxiety among the players.
The current situation is likely to create cotton shortage in the domestic industry. Lifting the ban would also imply an increase in yarn prices during March-August which is the peak season. Domestic industry will have to import cotton to handle the cotton shortage, and with the rupee appreciation, the situation is raising panic.
References:
1) Business-standard.com
2) Articles.economictimes.indiatimes.com
Indian textile industry is witnessing a demand in textile items, and this is expected to trigger the demand for cotton. Government's decision of allowing cotton exports is evoking a negative reaction among industry players. Exporting huge quantities of cotton would force the domestic players to import cotton from the global market at higher prices.
Earlier India imposed a ban on cotton exports, concerned that supplies would fall short in the domestic industry. Later, during March, the ban was lifted, but fresh registration certificates were not issued. Only the registration certificates(RC) issued before the ban were allowed to be shipped. Prior to the ban, the Government had issued RCs for 130 lakh bales. Cotton advisory boards estimate cotton production to be 34.7 million bales for the current season.
11million bales are exported so far, and it is further expected that India would be able to ship approximately up to 2 million additional bales of cotton reaching a record of 13.5 million bales. This is almost 54% higher than the figures of 2007-08 which was 8.8 million bales. (Source: economic times).
Domestic cotton consumption is estimated to be around 25.2 million bales, and consumption for the corresponding period of the previous year was 26.7 million bales. Domestic textile industry would require importing roughly around 2million bales to meet the requirements of the current year. Though the total imports depend on the lean season demand from textile mills; volume of imports is expected to be more due to less availability in the domestic markets. Imports are estimated to be around 0.6 million bales for the year October 2011 September 2012. Imports for the corresponding period of the last year were 0.5million bales.
Would the exports harm the Indian textile industry?
Lifting the ban for cotton exports is feared to create a serious shortage in the domestic industry in the coming months. There is likely to be an increase in the demand for cotton in the near future. Exporting huge volumes of cotton at such a time will force the domestic players to import cotton from global markets which may prove to be expensive. Majority of the cotton from India are being exported to the Chinese markets. Exporting cotton to China at competitive prices is believed to transfer the cost advantage to Chinese textile industry.
Business standard reports V Y Tamhane, Secretary General of Mill Owners Association, saying, "The way the rupee has fared in the past few months, imported cotton would be costlier than the realization on export from India. Hence, not only cotton and yarn prices would go up, but the cost of readymade garments would also shoot up sharply. "
Earlier when India imposed a ban on the cotton exports, garment makers who were hit by the sluggish demand of the US and EU markets appreciated it. The ban raised global prices, but restricted prices at the domestic market. Revoking the ban is stirring up anxiety among the players.
The current situation is likely to create cotton shortage in the domestic industry. Lifting the ban would also imply an increase in yarn prices during March-August which is the peak season. Domestic industry will have to import cotton to handle the cotton shortage, and with the rupee appreciation, the situation is raising panic.
References:
1) Business-standard.com
2) Articles.economictimes.indiatimes.com
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