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India : India could exit world cotton market (December 05, 10)

India : India could exit world cotton market

There are only two questions worrying the Indian cotton market right now. Will exporters get bonus time to complete existing contracts? Will others get a chance to muscle in? But at the bottom of it is something more fundamental: will India continue to export cotton this season? I’d say don’t bet on it.

Look at the time line. The last date for shipments is December 15. Exporters get three weeks after that to submit their shipping documents to the textile ministry. That takes us to January 5.

No one has a clue what will be the crop size at that time. Arrivals were significantly lower than last in November and December. The 2 lakh bales expected daily petered to 60,000. Gujarat and Andhra cotton harvest is spoilt by incessant rain, with high moisture, yellow colour and pest attacks. The old crop estimates of anything from 32 million bales to 35 million bales are clearly irrelevant. The crop may ultimately be closer to 30 million bales. So a meeting of the Cotton Advisory Board will have to be called to again do the supply and demand numbers and discover a surplus, if any.

If CAB does indeed find a surplus this season, the textile ministry would again have to seek Cabinet approval for exports. Till now they have permission to only register up to 5.5 million bales, which they did. After that, shipped or nod, they need another nod from other ministries. That takes us to the third week of January — the earliest you can expect an answer to whether India will continue exporting cotton. No matter what industry representatives and lobbysists may want to believe.

While the government figures out the larger picture, those who have not been able to fulfill their export contracts are feeling ill used and want a second chance. Who knew it would rain so much on their parade and delay the harvest so much.

It can be quite aggravating to see the fattest profit opportunity in a decade slip out of your hands. But those who were not able to register any contract at all when the window was open are feeling even more aggrieved. They want these ‘non-performers’ to be booted out and the unshipped quantities be offered to a different set of exporters.

For now they have the commerce ministry on their side. A cry has gone up to mete out ‘exemplary’ punishment to the laggards. Luckily, it’s never easy for the government to hand out punishment. The Director General of Foreign Trade believes it is for the textiles ministry to act the bad cop. But the textile ministry is not that keen on changing the rules of game mid-way and making itself vulnerable to challenge from exporters.

There is another reason too. The textile ministry is currently holding road shows across the country for its integrated textile parks scheme where it hopes to attract dozens of investors — Indian and foreign. It would be difficult for potential investors to trust a ministry that takes pleasure in penalizing large companies. You can expect a meeting between commerce and textile ministry this week to decide on ‘punishment’.

The smart thing would be to forget about penalizing exporters. And forget about exports as well. It is a pity rain played spoilsport for cotton exporters. But they have had their chance. The government allowed them to go ahead and export, braving the fury and protest from domestic spinners and weavers. Now in all fairness it is time the domestic industry got reasonably sufficient quantities of raw material, without the constant threat of shipments hanging over their heads.

And farmers won’t be hurt either. If the crop is indeed low, and the CAB will check on that, then they are holding a golden egg. Most have sold off their crop any way because it has low shelf life this season. If the harvest improves and a genuine surplus re-emerges, exports can always be resumed. Of course India’s exit will drive the world cotton market ballistic. The ban on cotton yarn has already kicked up world prices.

By barring free trade of the physical commodity, India is exporting textile inflation to cool its own WPI index. And it may seem a complete waste of opportunity to Indian spinners and traders. Their only consolation is that in government and in business, nothing is forever.

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