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Notice (8): Undefined variable: urlPrefix [APP/Template/Layout/printlayout.ctp, line 8]latest-news-updates/a-welcome-rollback-13666.html"/> LATEST NEWS UPDATES | A welcome rollback | Im4change.org
Resource centre on India's rural distress
 
 

A welcome rollback
-The Business Standard

Cotton export ban was an example of poor policy

The government’s sudden move to ban cotton exports – rolled back in less than a week following anger from cotton farmers and adverse political fallout — reflects very poorly on its policy management. The commerce ministry clamped down on exports without clear logic; prior consultations with other ministries concerned were also cursory or non-existent. Unsurprisingly, most players in the cotton sector were taken by surprise. The agriculture ministry was out of the loop, and so was the group of ministers that normally deals with key import-export issues involving agri-commodities. This mindless exercise hurt not only farmers, who still have considerable unsold stocks of the fibre, but also exporters, who had entered into supply contracts with foreign buyers after formally registering the exports with the government. Worst hit were those whose consignments were lying at the ports but were stopped from being shipped.

Expectedly, the global cotton body, the International Cotton Association, as well as cotton importers who had signed contracts for Indian cotton, took a dim view of the government’s action. India is the world’s second largest producer and exporter of cotton, after the US. Its abrupt withdrawal from the export market was bound to influence international cotton prices, adversely affecting textile and garment industries globally, which are still struggling to come out of the recession caused by the global economic slowdown. The only gainers are US cotton growers — and at the cost of Indian farmers. If India’s powerful textile lobby is responsible then it has, on this occasion, shot itself in the foot.

The commerce ministry’s arguments – that registered cotton export contracts had exceeded the “stipulated level” and that cotton producers and importers were “hoarding” abroad – appear untenable. Demand from the yarn and textile industries around the world is yet to recover adequately. Stockpiling in anticipation of profits is, therefore, unlikely. Further, any fears of shortage of cotton as an input for India’s textile industry seem unfounded, as this year’s cotton output is projected by the agriculture ministry at over 34.5 million bales (of 170 kg each), against the likely requirement of under 24 million bales. Local textile mills, too, have curtailed their raw material procurement due to slack demand for the finished products. If the textile lobby was using its power to try and depress prices, then it was in error, again. Domestic cotton prices have generally been 30 to 40 per cent below last year’s level. Any further slide would have proved counterproductive, deterring many cotton growers from planting the crop in the next season. That would have caused a future supply crunch and a severe price spike next year. Farmers in key cotton-producing states, such as Maharashtra, Gujarat, Andhra Pradesh, Punjab and Haryana, have already threatened to reduce cotton planting unless they are assured of reasonable returns. Government action that increases the uncertainty to which growers are subject will be bad for the textile industry. Now that good sense seems to have prevailed and the commerce ministry has retracted its step – albeit after deservedly receiving a good deal of flak – it can be hoped that it has learned some useful lessons.