Rising cotton, yarn prices squeezing textile industry
Government should take steps to control the yarn export to bring down the skyrocketing cotton prices
MNCs are playing a hatched game in the cotton trading against the interest of the textile industry by way of hoarding a huge stock during the cotton yielding season by using their very low cost of international fund and triggering for increasing of cotton price
Massive IPOs, booming share market, good festive season and since the implementation of GST, the second-highest GST collection for October 2021… I can give a few more such strong reasons showing that the Indian economy is going in the right direction. But one thing which adds worry in this scenario is the high inflation, especially for the lower middle class and middle-class Indians. You can say that inflation is high in giant economies also like the US, China and Japan are also facing this challenge and we can't remain unaffected by global developments.
Whatever the reasons are there for inflation, but one thing is sure that people are suffering and they are not happy at all. Similar is the situation with the Indian textile and clothing industry as there is good demand on export as well as domestic front, but the unprecedentedly high rates of cotton and yarn are making the industry unhappy and uncompetitive as well. Cotton prices have soared to their peak in the last 11 cotton seasons.
This hike is also globally as major textile and clothing producing countries are also facing the problem, few of the development at an international level is also responsible for the same like the US has banned the Xinjiang cotton of China. This region produces 80 per cent of Chinese cotton and 20 per cent of global cotton production. Now apparel demand is at the pre-Covid level so the demand for Indian cotton and yarn is also very high. India's increased yarn export is also a major reason responsible as due to this Indian clothing manufacturers are forced to purchase the yarn and fabric at a high price.
But can we be helpless saying that the situation is similar across the globe and reasons are global? This is despite that India is globally the number one cotton producer as our farmers of mainly 11 states produces 25 per cent cotton of the world.
Hurting to the industry most and especially small enterprises is that this increasing price is often taking place and despite the intervention of textile ministry, there is no gain to the segment of the industry, which is suffering most due to hike.
It is strongly believed by the industry that there is a nexus behind this hike and only that nexus is making money while all other stakeholders are losing. Previous textile minister Smriti Irani also asked for the investigation in this regard, but there is no gain at all. And this vicious circle is continuously hearting the major chunk of the industry. Trade bodies openly/officially say that MNCs are playing a hatched game in the cotton trading against the interest of the textile industry by way of hoarding a huge stock during the cotton yielding season by using their very low cost of international fund and triggering for increasing of cotton price.
To improve this situation and to find a long-term solution, there is a strong need to work on many fronts. It can be started with the improvement of Cotton Corporation of India's working. CCI is the nodal agency to procure the cotton on MSP from farmers. CCI need to be directed to protect the interest of farmers at the first instance. It also needs to open its supply chain centre based on the demand request to facilitate the speedy availability of cotton at the user end. It also needs to be mandated to supply cotton directly to small, medium and large enterprises textile mills as per their capacity instead of fixing a higher benchmark to the quantities, which only benefit either corporates or MNCs in the cotton trade. Just a few days back Government approved to pay Rs17,408.85 crore to CCI and this is in order to safeguard the interests of the cotton farmers it is expedient to conduct price support operations in cotton years 2014-15 to 2020-21 as cotton prices touched the MSP prices. The cotton value chain consumes around 1/3rd of the cotton while 2/3rd of the cotton is procured by multinational traders and CCI and the cotton prices also remain subdued from November to March making Indian cotton farmers to suffer due to market dynamics.
Regarding the development at the grass route level, agriculture and textile ministries need to work together, it will not only benefit our farmers but the industry also. Cotton cultivation area can't be increased but cotton production, cotton quality can be increased and there are ways to decrease the cotton-producing cost. Our productivity is abysmally very low in comparison to the global average. India needs to increase the cotton productivity to 800-900 kg per hectare from the current level of 457 kg per hectare. Support regarding Technology Mission on Cotton II will be helpful to achieve this increased productivity. This will benefit all and especially our farmers. Government can take steps to control the yarn export, though yarn exporters will object to this, but to bring down the price in India, it will not be wrong to limit the yarn export.
And all this need to be done on a priority basis as there are enough chances that this year export of cotton may cross 100 lakh bales. If media reports to believe the cotton season 2021-22 started with an opening stock of over 100 lakh bales. The estimated production of cotton is about 355 lakh bales. There will be a consumption of about 330 lakh bales and the textile industry may import about 10 lakh bales, leaving about 135 lakh bales for export and carry-over stock. This will result in not only having a shortage of cotton in the international market but also abnormal speculation in the cotton prices.
It is a known fact that cotton is one of the most important cash crops and plays a major role in sustaining the livelihood of around six million cotton farmers and 4-5 crore people engaged in related activities such as cotton processing and trade. Is this not high time for all of us, be it industry, Government, farmers organisations to work collaboratively and to create a win-win situation for all. And as progressive Government can take a lead to initiate and push this massive exercise.
(The author owns a garment manufacturing setup in a rural area, which employs mostly women workers)