India: Cotton export controls will hurt growers

The country may lose out on a great opportunity to maximise raw cotton exports in the coming months and in the process fail to deliver more remunerative prices to growers because of likely quantitative restrictions on exports that the policymakers are talking about. With output estimated at 325 lakh bales by the Cotton Advisory Board, the country will have large and genuine export surplus of anything up to 75 lakh bales after fully meeting the raw material needs of the domestic market. While availability may not be an issue, price is most likely to be. Domestic prices are likely to rule firm because of large scale purchases by traders for export. Firm prices are sure to boost growers' incomes; and why should anyone complain? After all, they have toiled to deliver a record crop. Global price cues are also bullish because of tight market fundamentals in 2010-11.

However, high domestic prices are not something the user industry �� cotton textile mills �� is going to enjoy. High raw material costs squeeze the bottom line and erode competitiveness. For the industry, the import option is, of course, open. Mills are free to import unrestricted quantities of cotton duty-free. If cotton imports are liberal and duty-free, so should cotton exports be. Liberal cotton imports benefit overseas growers, while liberal exports benefit growers in our country.

Trade policy

Eventually, the debate is not about quantity of cotton produced or export surplus, it is about price. The textile industry may hate to admit it, but the reality is that it is not tight availability but high price that the mills despise. Eventually, it is for the Government to decide whether it wants to follow a liberal trade policy, where prices are largely market-driven, or a restrictive trade policy, in which some stakeholders benefit at the cost of others.

Demand and tight stocks are driving world cotton prices higher, the Washington-based International Cotton Advisory Committee said in its latest release.

It has forecast 2010-11 season-average Cotlook A-Index of 89 cents a pound (up from 77.5 cents a pound from the previous year), implying a 15 per cent rise. It also means, cotton prices may range from a low of 76 to a high of 106 cents a pound in the upcoming season. Despite being the world's largest producer, China's cotton imports next season are forecast to spurt by almost a third to 3.1 million tonnes.

There will be competition among exporters, including the US and India, to garner a larger share of the world market. India may not win market share but may lose out if the Government imposes quantitative and shipment restrictions on cotton as is being talked about.

thehindubusinessline