A sharp jump in domestic cotton prices since February, caused partly by a drop in output, has hit the country’s textiles-and-clothing value chain, rendering hundreds of thousands jobless.
In the beginning of March this year, prices of cotton were Rs 76,000 per candy. But prices of the commonly used cotton variety have more than doubled to breach the Rs 90,000-mark per candy of 356 kg. In February 2021 import duty on cotton was raised. Local cotton prices have also exceeded global rates by as much as Rs 1,500-2,000 per quintal.
Yarn manufacturers and garment units face the grim prospect of losing their shares in export markets, where they made rapid strides in FY22. Industry officials say that scores of export orders have either been cancelled by western buyers or been diverted to India’s competitors like Bangladesh, Vietnam, China and Pakistan in recent months after the steady spurt in cotton prices forced domestic players to try and renegotiate deals.
In a meeting with commerce and textile minister Piyush Goyal on April 4, a delegation of top executives representing the textiles and garment sector sought abolition of the 11% import duty on cotton to tide over the acute raw material shortage.
Although the Centre had fixed the minimum support price (MSP) of much-in-demand long-staple cotton at Rs 6,025 per quintal for the 2021-22 season, the procurement agencies – Cotton Corporation of India and Maharashtra State Cooperative Cotton Federation – haven’t had to purchase cotton from farmers as market rates remained much higher than the MSP.
Various cotton varieties are being sold at prices ranging between Rs 8,000 per quintal and Rs 13,500 a quintal at most mandis in the state. A fall in cotton production in the last season coupled with a jump in consumption of the natural fibre by textile units that had secured export orders, led to a shortage of cotton in the country. Cotton imports in India are effectively taxed at 11% (including cess and surcharges), while Vietnam and Bangladesh allow their industries to buy the fibre from abroad at zero duty. This offers India’s competitors a substantial advantage in raw material costs, in addition to their duty-free access to critical markets like the US and the EU, a privilege that New Delhi doesn’t enjoy.