India: Textile mills versus cotton farmers

Cotton is the pivot around which the country’s textile mills spin. But for the mills in Tamil Nadu, the crop has paradoxically proved an Achilles heel. The state consumes about 110 lakh bales of cotton a year. It also accounts for 50% of India’s spinning capacity and 60% of its yarn exports. In addition, the state’s mills feed the knitting industry (80% of which is in the state), a large number of power looms, hand looms and the manufacturers of home furnishings.

Unfortunately, production within the state can only supply around 5% of the required cotton. The rest is either imported or sourced from other states, some as far away as Haryana and Punjab. This means spending Rs 5-6 per kg or more on logistics and stocks.

Till 2005, quality and quantity of cotton used to be the issue. Bt cotton and technology missions set that problem right to an extent. Then came the free export permit that made the Tamil Nadu mills buy cotton from foreign traders who had purchased more than their needs from the open market. Indian cotton was then cheaper in neighbouring countries than in Coimbatore, the spinning hub of the nation.

When the mills came out of this predicament, they had to face another hurdle. The farmer-friendly government announced a 45% increase in the minimum support price for cotton. This put the Tamil Nadu mills at a great disadvantage. They were not able to hike yarn prices as cheaper yarns from China and other neighbours were looking for a toehold to enter India. The Tamil Nadu mills have to struggle to keep going in the face of acute power shortage and trippings.

Now they have to additionally cope with the government move to offer 5% incentive to cotton exporters. Hurt continuously by cotton, the exasperated mill-owners are crying for help. At stake are millions of jobs and billions of dollars of textile export revenues.