India, the world's second-largest cotton supplier, will allow cotton exports without mandatory licenses from the next marketing year starting Oct. 1, a government order said Tuesday, likely boosting the country's shipment and prices.
But the contracts for cotton exports will have to be registered with the Textile Commissioner before shipments are made, the government order said.
The government currently controls cotton exports by granting licenses for individual shipments and gets an export tax of INR2,500 per metric ton.
"Exporters are going to be active, which means the market is going to be strong. Prices will firm further up in the local market," said A. Ramani, joint secretary of the South India Cotton Association.
Cotton prices in India surged 12% in August to hit a record INR33,000 ($709.7) per 356 kilograms Tuesday, extending a rally from last month when the government allowed exports of around one million bales of 170 kg each that had been stuck because of a ban, said two senior industry officials.
Ramani said the unrestricted export policy will boost the supplies to China and Pakistan, which has been hit by floods.
China is the largest importer of Indian cotton by volume, accounting for more than 70% of shipments, followed by Pakistan, Bangladesh and Thailand.
India in May 2010 lifted the month-long ban on cotton exports, but put in place stringent export rules by introducing a licensing system as the government wanted to strike a balance between adequate cotton supplies to local mills and fair returns to farmers.
According to official data, traders shipped 7.38 million bales from Oct. 1 to July 31, boosted by a recovery in global demand. Before the ban was briefly imposed in April, exporters had contracted to ship 8.52 million bales.
In the last marketing year that ended Sept. 30, the country's cotton exports fell 60% from a year earlier to 3.5 million bales amid the global economic downturn.
Ramani said Indian cotton, despite running high in the physical market, is still cheaper than any other globally competitive variety and buyers will definitely turn to India to source their requirement.
