India: Cotton price may rise post export ban lift

A realistic price range for cotton in the domestic textile market will once again exist, after the Centre lifted restrictions on cotton exports and moved to bring exports under Open General Licence (OGL).

In October 2010, to protect the domestic textiles industry due to rising raw material costs, the government capped cotton exports at 55 lakh bales (170 kg each). Cotton prices which were at Rs 62,000 per candy (356 kg) in January 2011 fell to Rs 29,500 per candy in the last week of July. Last month, the Centre permitted exports of an additional 10 lakh bales of cotton over and above the 55 lakh bales it had permitted earlier.

The move is set to benefit ginners, traders and exporters who were saddled with stocks piled up over the last few months. Traditional markets like China, Bangladesh, Turkey, Pakistan and Thailand are being eyed to dispose pending stocks.

Textile Secretary Rita Menon, in an interview to CNBC-TV18, said that the cotton prices would marginally rise after the lift on export ban. She stated, "Our prices have been much below the Chinese prices at which they are procuring. With this lift in ban, the prices would crawl up to a certain level because they have been down to a rock bottom level, which has been unprecedented over the last two years."

Talking on the 10% excise duty on branded garments, Menon told CNBC-TV18, "The April, May and June numbers show an impact after reiteration with the retail sector and all players. It has had an extremely adverse impact on the festival sale in the last quarter orders."

We will pitch strongly for the excise duty to be mitigated as the retail sector has great room to grow. This will merely inhibited the retail sector from growing and encourage imports from other countries, which have comparative advantage, she pointed out.

Below is the edited transcript of Menon's interview with Anuj Sighal and Latha Venkatesh. Also watch the accompanying video.

Q: What will the lifting of cotton exports ban do to the season in terms of cotton supply and cotton availability? What is the likely impact on cotton prices?

A: The cotton prices expect to rise marginally because our prices are much below the Chinese prices at which they are procuring. With this background, the prices would crawl up to a certain level as they are down to a rock bottom level, which has been unprecedented over the last two years.

Looking at the cotton security for the rest of cotton season and adequate stocks of cotton with the mills, traders, farmers and ginners, the government lifted the ban and brought cotton exports under OGL.

We have made an assessment with traders and millers that for the next two months, there would be adequate cotton for consumption and mill utilisations. With that and expectation of high bumper cotton crop starting cotton year 2011-12 from the October 1, it was the most judicious decision keeping in mind the interest of all the stakeholders.

Q: The Textile Ministry is pitching for the duty drawback on cotton yarn exports. Can you update us on this?

A: We have pitched for a duty drawback. It has still not been finalised for readymade garments, apparel exports as well as packaging credit for cotton and other line items where it was admissible.

The duty entitlement passbook scheme (DEPB) has been restored with retrospective effect for the packaging part. We have been still waiting for any news related to the quantum of drawback.

Q: The Textile ministry has been looking at recommending the technology upgradation fund (TUF) scheme for the 12th Plan. Could you give us an overview on this recommendation and its likely impact?

A: For the TUF scheme for the 12th Plan, we are strongly pitching for an approach, which will enable composite mills to come up (includes entire value chain from spinning, weaving and processing). We are keen that the quantum of processed fabric in this country would go up. We will also have a look at the environmental issues.

A lot of industry requires protection from pollution. For example, the Tirupur Industry is actually closed to the extent of 30-40%. In the 12th plan within the ministry of textiles, we want to have a budget line wherein we could ease out the problems of regions, whenever they have an issue on integrated textile park or under the technology upgradation fund scheme.

We would like to iron out that issue, which has really engaged us over the last two years. We would like the power loom sector to have better and automatic looms as well as have conglomerations wherein there would be an eye on the infrastructure creation and a cluster of approach.

The power loom sector, the sericulture sector and the reeling requirements of the Indian silk, cocoon development and mulberry development programme will be a focus. There will be a focus on composite mills, especially on weaving and processing.

We would review the percentage of back-ended subsidy and support for the 12th Plan given the uncertain inflation. This is what we recommend for the 12th Plan. We have just had our meeting and intend to put it up to the steering committee group, which will be meeting the real magna macro groups.

Q: One of the points in the budget which drew maximum angst from the textile industry was the 10% excise duty on branded garments. Is the ministry convinced that it has been adverse for the industry? Are you all seeking for its rollback at all?

A: We have got the numbers for April, May and June and it has had an impact after reiteration with the retail sector and all the players. It has had an extremely adverse impact on the festival sale in the last quarter orders.

We will pitch strongly for the excise duty to be mitigated because the retail sector has great room to grow. This duty will merely inhibited the retail sector from growing and encourage imports from other countries, which have comparative advantage.