The government is likely to snip import duty on cotton as part of a package to sew up fibre costs for local cloth mills. This package would be in addition to allowing cotton imported at zero duty from Africa to compete with Indian cotton.
The government is exploring a reduction in import duty from 10% to 5% and removal of special additional duty of 4.5%. The government may also remove export incentives such as the 1% draw back on packaging material. Zero duty import of cotton will be permitted from the least developed countries of Africa. The list of LDCs could be expanded to other regions.
The move to increase direct competition comes at a time when Indian cotton farmers are celebrating a great season. Extraordinary international demand in 2008 has given farmers unprecedented profits despite a record harvest.India is now the world’s favourite shopping destination for affordable good quality cotton due to an exportable surplus of 10 million bales this season.
But this unexpected rise in cotton prices has miffed textile mills, who are pressured by lower profit margins and rupee appreciation. Textile mills believe a duty cut will exert psychological pressure on the market and deter any speculative hoarding, especially by exporters. “We believe foreign trading companies could be holding as much as 25 lakh bales of cotton. That has distorted the market,” officials at the East India Cotton Association, an industry body, said.
Moreover, textile mills could import cotton if there is price parity. “African cotton is 4 cents more expensive than Indian cotton right now. Plus, there is an 8 cent duty in India. If this duty is zero, African cotton would become quite competitive here,” said a Mumbai-based trader. But with India itself the cheapest and largest source of cotton in the world, finding alternatives may be tough.
Meanwhile, there is little evidence that India could be running out of cotton soon.
India has produced at least 31 million bales. Indian mills consume 21.5 million bales, while the pipeline carries 2.5 million bales. That leaves 7 million bales from this season’s crop, along with about 2 million bales carried forward from last season.
In other words, India has almost 10 million bales to spare. Since exports are unlikely to cross 6.5 million bales, there is little reason to panic. “There is ample availability. By reducing import duty, the government will distort price signals to farmers just before the 2008 sowing season,” said a trader here. India is poised to become the world’s top cotton producer within a couple of years if yields continue to increase.
Large ginners and exporters said Indian textile mills are annoyed because they are unable to beat down cotton prices as they are wont to.
“Mills were expecting to profit from the record harvest by paying low prices. That calculation went awry when exporters entered the market and bid up prices. Just because mills are not willing to match other players in the value chain, there is no reason to penalise the entire cotton economy,” said an exporter here.
Prompt payments appears to be another factor that has attracted ginners towards exporters.
“Mills usually follow the pay-when-able style of functioning, which is very tough for small ginners. Unfair trade practices are also rampant. So when ginners found that exporters are willing to pay within the contracted time and not expect credit, they obviously jumped at the offers,” said a ginner.
The USDA forecasts 2007-08 to show lower production, consumption, and trade of cotton in the world market. Production will be lower in China, Brazil, and Turkey, but higher in Pakistan. World consumption is likely to be lower mainly in China, India, and Turkey, due to weaker than anticipated textile demand combined with higher cotton prices relative to polyester. var RN = new String (Math.random()); var RNS = RN.substring (2,11); b2 = ' '; if (doweshowbellyad==1) bellyad.innerHTML = b2;
The government is exploring a reduction in import duty from 10% to 5% and removal of special additional duty of 4.5%. The government may also remove export incentives such as the 1% draw back on packaging material. Zero duty import of cotton will be permitted from the least developed countries of Africa. The list of LDCs could be expanded to other regions.
The move to increase direct competition comes at a time when Indian cotton farmers are celebrating a great season. Extraordinary international demand in 2008 has given farmers unprecedented profits despite a record harvest.India is now the world’s favourite shopping destination for affordable good quality cotton due to an exportable surplus of 10 million bales this season.
But this unexpected rise in cotton prices has miffed textile mills, who are pressured by lower profit margins and rupee appreciation. Textile mills believe a duty cut will exert psychological pressure on the market and deter any speculative hoarding, especially by exporters. “We believe foreign trading companies could be holding as much as 25 lakh bales of cotton. That has distorted the market,” officials at the East India Cotton Association, an industry body, said.
Moreover, textile mills could import cotton if there is price parity. “African cotton is 4 cents more expensive than Indian cotton right now. Plus, there is an 8 cent duty in India. If this duty is zero, African cotton would become quite competitive here,” said a Mumbai-based trader. But with India itself the cheapest and largest source of cotton in the world, finding alternatives may be tough.
Meanwhile, there is little evidence that India could be running out of cotton soon.
India has produced at least 31 million bales. Indian mills consume 21.5 million bales, while the pipeline carries 2.5 million bales. That leaves 7 million bales from this season’s crop, along with about 2 million bales carried forward from last season.
In other words, India has almost 10 million bales to spare. Since exports are unlikely to cross 6.5 million bales, there is little reason to panic. “There is ample availability. By reducing import duty, the government will distort price signals to farmers just before the 2008 sowing season,” said a trader here. India is poised to become the world’s top cotton producer within a couple of years if yields continue to increase.
Large ginners and exporters said Indian textile mills are annoyed because they are unable to beat down cotton prices as they are wont to.
“Mills were expecting to profit from the record harvest by paying low prices. That calculation went awry when exporters entered the market and bid up prices. Just because mills are not willing to match other players in the value chain, there is no reason to penalise the entire cotton economy,” said an exporter here.
Prompt payments appears to be another factor that has attracted ginners towards exporters.
“Mills usually follow the pay-when-able style of functioning, which is very tough for small ginners. Unfair trade practices are also rampant. So when ginners found that exporters are willing to pay within the contracted time and not expect credit, they obviously jumped at the offers,” said a ginner.
The USDA forecasts 2007-08 to show lower production, consumption, and trade of cotton in the world market. Production will be lower in China, Brazil, and Turkey, but higher in Pakistan. World consumption is likely to be lower mainly in China, India, and Turkey, due to weaker than anticipated textile demand combined with higher cotton prices relative to polyester. var RN = new String (Math.random()); var RNS = RN.substring (2,11); b2 = ' '; if (doweshowbellyad==1) bellyad.innerHTML = b2;
