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Extra cotton exports wont hit sector margins: Textile Secy

Updated: 2011-6-11 Source: www.moneycontrol.com

The government decided to permit exports of an extra 10 lakh bales of cotton during the current season ending September.

In an interview with CNBC-TV18, Rita Menon, Textile Secretary said the decision has been prompted by the agricultural ministry.

She doesn’t see impact on industry margins due to cotton exports.

Also read: Export limit hike won't affect cotton price, says Alok Industries

Below is the transcript of her interview with Udayan Mukherjee and Sonia Shenoy of CNBC-TV18. Also watch the accompanying video.

Q: What prompted your decision to allow additional 10 lakh bales of cotton? What do you think it could mean for the price of cotton and therefore for garment and textile or apparel manufacturers?

A: The garments, textiles and apparel manufacturers are not in a very great position today because there is certainly a concern over increasing price of raw materials, especially for the powerloom and the handloom waivers. As you are aware, powerloom constitutes almost 60-65% of the total output.

The government has decided to allow exports of 10 lakh bales in a meeting last evening. And that has been actually prompted by the agricultural ministry, very buoyant estimates of the total crop of cotton, which they say would be definitely 339 lakh bales in the cotton year 2010-11.

Q: What does that really do to prices then? Prices have fallen quite steeply, about 30-40% in the last two months alone, what is your assessment of that trajectory?

A: I wouldn’t accept 30-40% in the last few months alone. I would say that from the high of last year, the prices this cotton year 2010-11 were 125-150% above. The prices today are 55% above last year’s prices. Overall, the prices reign today at far higher rates than they were at the same time last year.

But yes, from a high of Rs 66,000, it has come down to Rs 45,000 which is the reigning price today. I see a tremendous narrowing down of the international price as per the Cotlook index and the Indian price which reigns today, it is narrowed down to about 30 cents.

I see that a marginal increase in the price of cotton may come about once the efforts at shipping out and prior to that registration kick in. I do believe that it would level out to some extent, but would reign at far higher prices than last year.

Q: There has been some trepidation from the textile industry on the prospect of the possibility of the withdrawal of the duty entitlement pass book (DEPB), there is a bit of confusion about now. Have you been engaging with the Finance Ministry or the Commerce Ministry on what the eventual outcome would be?

A: No, we are continuously engaged. But the removal of the DEPB is kind of a macro decision to phase it out immediately, which is June 30. But yes, there are other instruments like duty drawback, which are being discussed, presentations have been made down the value chain. The ministry is supporting the Textile Ministry’s endeavour for a revision in the duty drawback rates on account of the realities of the input cost.