WHILE Indian textile exporters are sustaining huge losses because of the strengthening rupee, cotton exporters are reaping a rich harvest as demand for the commodity is soaring.
Cotton exports this year (2007-08) are expected to exceed 6.5 million bales (one bale: 170 kg) perhaps even touch the seven million-mark, riding on the back of a surge in demand especially from China and Taiwan. Happily for the exporters – and for the growers -prices are also on an upswing. Exports rose by 27 per cent in cotton year 2006-07 to six million bales.
A fall in global cotton production, including a sharp fall in America with farmers shifting to other crops, has helped boost exports from India. According to P.D. Patodia, chairman, Confederation of Indian Textile Industry, demand for Indian cotton is rising rapidly. Cotton exports are expected to leap by over 20 per cent this year.
The cotton year runs from October to September. Growing demand for Indian cotton has seen a huge increase in the area under cotton production, and also a spurt in arrivals. In October, the first month of the new cotton year, arrivals in markets across the country touched 2.8 million bales, as against 1.8 million bales in the same month last year.
According to S.C. Grover, chairman and managing director of Cotton Corporation of India (CCI), the October arrivals have shattered a 10-year-old record. Arrivals this month are expected to touch 5.5 million bales, rising to 6.5 million bales in December and about six million bales in January, before starting to slide.
India’s total cotton production jumped by 3.5 million bales to 28 million bales for the year ended September 2007. It is expected to rise by another three million bales in the current cotton year.
With growing demand for Indian cotton, producers have also been expanding the area under cultivation. Growing domestic demand from textile mills for cotton since 2005 – when exports of Indian textiles took-off – saw many farmers shift to cotton.
The strengthening of the Indian rupee – it has gained by nearly 14 per cent against the dollar this year – has hurt the prospects for India’s textile exports, but continuing demand from China, Taiwan, Indonesia and other countries for raw cotton has seen a buoyant cotton market in India.
Even state-owned CCI, which pays farmers a minimum support price (MSP), hopes to raise its procurements this year: from around 300,000 bales last year to about 1.5 million bales this year. The company expects to nearly double its exports to about 300,000 bales in the current year. Last year, nearly 20 per cent of India’s cotton production was exported; this year, about a quarter of the production is likely to be exported. India also emerged as the second largest producer and exporter of cotton. Interestingly, just four years ago, India’s cotton exports amounted to a meagre 100,000 bales, whereas it imported about 2.5 million bales of cotton. Today, imports are down to just half a million bales, mostly the extra-long staple variety, which is not available in the country.
DEMAND – and price realisation – for Indian cotton in the overseas markets has soared following an improvement in the quality of the product. The cotton technology mission resulted in improved varieties of cotton, while genetically engineered Bt (bacillus thuringiensis) cotton has dramatically increased the average yield, from a little over 300 kg a hectare in 2001-02, to nearly 525 kg a hectare in 2006-07.
The area under Bt cotton increased by a whopping 65 per cent to over six million hectares this year, covering about half the cotton growing acreage in the country. Cotton production also soared from 15 million bales in 2002 to 28 million bales this year.
India has also overtaken China in terms of the area under Bt cotton cultivation; while China began commercial cultivation of Bt cotton way back in 1996, the area under cultivation added up to 3.5 million hectares last year (whereas in India it had touched 3.8 million hectares).
India, under the cotton technology mission, developed new varieties including Shanker-6, H-4 and MCU5, which are accepted in the international markets.
Cotton prices have gained by about 10 per cent in India, mainly because of the growing demand from Asian countries. Shanker-6, the medium staple cotton, for instance, is ruling at around Rs20,000 a candy (360 kg). The price of MCU5 has jumped from under Rs20,000 a candy last October to Rs21,500 at present.
But the slowdown in the procurement of cotton by the textile industry could hurt the prospects for the sector. Patodia of the Confederation of Indian Textile Industry notes that prices could react later in the year, as mills defer their procurement decision.
The worst-hit by the rupee crisis are the medium and small players, who account for about 50 per cent of total domestic consumption. Last year, the industry accounted for about 22 million bales of cotton out of total production of 28 million bales.
INDIA’S textile exports are likely to decline by over 10 per cent this year, as the strong rupee has hurt exporters. Profit margins are also being squeezed because of the rise in the price of domestic cotton.
Before the boom in cotton exports, domestic prices were lower by 10 per cent, helping textile exporters maintain low prices. But the rising rupee and the spurt in cotton prices in India have come as a double-whammy for the Indian textile industry, which is now reeling under a crisis.
Exporters are losing business to suppliers from Pakistan, Sri Lanka, Bangladesh, China, Vietnam and Cambodia and are being forced to drastically cut down their operations. The industry has urged the government to regulate cotton exports, to help it confront the crisis. It has also sought a five per cent cut in import duty on cotton.
So far, the textile industry has shed about half a million jobs this year following the nearly 20 per cent decline in exports. Another 800,000 artisans in the handicraft sector are likely to lose their jobs if the crisis continues over the coming months.
Last week, textile exporters met Finance Minister P. Chidambaram, and demanded a series of steps that would help them survive the crisis. They sought an increase in duty drawback rates, reduction in interest rates for both pre- and post-shipment credit, and exemption from service tax.
Chidambaram has promised to look into their grievances and hammer out ‘concrete measures’ that would help alleviate the industry’s woes. A majority of India’s textile exports are dollar denominated and the jump in the value of the rupee has made most Indian products uncompetitive in the international markets.
The government is also divided on the steps that need to be taken to revive exports. While some want the Reserve Bank of India, the country’s central bank, to intervene in the foreign exchange market to curb the strengthening rupee, others are reluctant to go back on reforms.
However, with elections round the corner, the government also does not want hundreds of thousands of job losses, especially in export hubs like Delhi and the National Capital Region, Bangalore, and Tirupur in Tamil Nadu. About half a million people are employed in Tirupur’s garment industry, which has been witnessing breathtaking growth over the past three decades. And nearly 70 per cent of the products are exported to the US.
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