Indian cotton industry hit by high prices; traders ask for relief

Organisations related to cotton production are optimistic about bumper production this year.

High cotton prices in India have kept the industry burdened with low earnings. While the traders find the domestic cotton price uncompetitive in the global market, the government finds the price reasonable. “Indian supplies are uncompetitive due to higher prices. Buyers are giving preference to Brazil and the US,” Arun Sekhsaria, Managing Director of exporter DD Cotton told Reuters. The government has raised the minimum raw cotton buying price by 38 per cent in two years to Rs 5,550 per 100 kg, even as global were corrected to the lowest level in more than three years. 

It is also being said that the government is trying to keep the cotton prices firm artificially, although the expectation is that bumper cotton production in the new season could dampen prices and make exports viable if the Cotton Corporation of India (CCI) buys large quantities from farmers. 

Accepting that CCI buys only nearly 3 per cent of the cotton production, Dr P Alli Rani, Chairman-cum-Managing Director of the CCI, told Financial Express Online, “Depending on the season, India produces 320-380 lakh bales of cotton and despite increasing the MSP by over 20 per cent last year, the farmers are selling only nearly 3 per cent to the government as they are getting much better price of their produce by the private bodies”.

Dr P Alli Rani underlined that bulk buying by the private bodies apparently shows the good quality of the Indian cotton and their price competency. Organisations related to cotton production are optimistic about bumper production this year. 

India’s cotton production in the current fiscal year is likely to jump as much as 20 per cent on-year to the highest level in five years due to a bigger cultivated area and a boost to yields from above-average monsoon rains, a senior industry official told Reuters. The surge in production is also likely to bring down the prices.  

“As far as Cotton prices are concerned, last year domestic production was down at 32.8 million bales and Chinese stock was at a record low. Due to good domestic demand, empty pipeline and lower production numbers the cotton prices remained upward. However, we expect cotton prices to remain firm this year,” Manoj Jain, Director-Commodities and Forex banking, India Nivesh, told Financial Express Online. 

Asking on why India has to import cotton despite being the largest producer, Dr P Alli Rani said that India is self-sufficient in its cotton consumption but certain grades such as contaminated free certified cotton and extra long staple cotton are not produced in India. Thus they have to be imported as some exporters need them to maintain the product standards.  

Meanwhile, bank credit to at least 12 different industries has contracted on-year by the end of August 2019, going by the official figures of the government. As a matter of fact, the cotton textiles industry has taken a maximum hit amid the slowdown when the government is consistently trying to boost investment by pushing credit into the industries.