By using over 85 percent of the cotton produced in the country, the mostly cotton-based Indian textiles and garment industry employs over 105 million people across the country, including those below the poverty line, rural masses, and women, including 6.5 million cotton farmers.
Cotton is an agricultural and seasonal product, with over 90% of the crop arriving in the market between December and March each year. Due to a lack of working capital and high funding costs, spinning mills often hold two to three months' worth of cotton after the season and purchase the remainder from the open market from July to October.
So long, the country has been generating surplus cotton and exporting it to several countries, particularly Bangladesh. However, due to a significant increase in demand and export of roughly 50 lakh bales this season, the country is anticipated to confront a cotton shortfall of 30 to 40 lakh bales.
The exceptional increase in domestic cotton prices from Rs.135 per kg in February 2021 to Rs.219 per kg in February 2022, a 65 percent increase, is harming exporters' ability to satisfy their export commitments. The cotton market in India has been exacerbated by the imposition of an 11 percent import duty (5 percent BCD, 5 percent AIDC, and a 10% Social Welfare Surcharge on both).
Farmers, ginners, and traders are storing cotton since the seed cotton price (kapas) are roughly 70% more than the Minimum Support Price. They are waiting for future price increases. Cotton arrivals have dropped dramatically to roughly 220 lakh bales in February 2022, compared to around 293 lakh bales in the same month last year.
Roughly 150 lakh bales have been consumed by mills, 30 lakh bales have been contracted for exports, 15 to 20 lakh bales are in the pipeline, and around 20 lakh bales are with the trade and ginners of the 220 lakh bales that came in the market. As a result, the spinning mills only have one to two months' worth of stock, as opposed to the usual three to six months' worth.
Ravi Sam, Chairman, Southern India Mills' Association (SIMA), has appealed to the Prime Minister to intervene immediately on cotton policies and take appropriate steps to avoid production stoppage and job losses, and to enable exporters to meet their export commitments during the off-season at a press conference held today at SIMA premises.
According to him, the cotton crop size for the cotton season 2021-22 will be less than 350 lakh bales, compared to the industries' requirement of 360 lakh bales, due to a 7.2 percent loss in cotton area and crop damage in key cotton-growing States due to severe rain.
Ravi Sam stated that the spinning industry, which has been unable to upgrade over 35 percent of its capacity due to a long-running recession over the last 15 years, has finally begun to invest in modernization, capacity expansion, and greenfield projects. According to him, over two lakh spindles capacity is added every month in the country, and this trend is expected to continue in the coming years if the right conditions are formed.
The cotton textile industry's accelerated growth has increased cotton consumption by 10% to 15% during the current cotton season, according to the SIMA Chairman, and the industry requirement is likely to reach 360 lakh bales, surpassing the crop size for the first time in history, putting the country in a cotton deficit. He also stated that around 25% of the cotton harvested during the early and late seasons will be of inferior quality and will not be suitable for export or high-value-added textile products.
Ravi Sam believes that the cotton supply for the season will be 437 lakh bales, based on 75 lakh bales of opening stock, 350 lakh bales of crop size, and 12 lakh bales of imports. He went on to say that with estimates of 360 lakh bales of cotton consumption and 50 lakh bales of cotton export (over 30 lakh bales have already been contracted for export), the closing stock would be only 27 lakh bales, resulting in a shortage of 40 lakh bales of good quality cotton to meet industry demand and maintain its growth rate.
The Government is actively contemplating exempting Extra Long Stable (ELS) cotton (32.5 mm and above) from import tariff if it is not grown in the nation, according to the SIMA Chairman, because it will have no impact on farmers.
While applauding this initiative, SIMA Chairman has requested that 40 lakh bales of cotton be imported duty-free to avoid production halts and job losses owing to cotton shortages at the conclusion of the season. Ravi Sam added that during the 2010-11 season, when the country was facing a similar issue, the Empowered Group of Ministers suggested that the closing stock be at least 2 12 months of mill consumption.
He stated that the Association will not advocate any export restrictions or bans. However, enabling the required quantity of duty-free cotton imports based on supply and demand is critical to avoid production halts, seize new market opportunities, and double the textile industry's size as intended by the Prime Minister.
