Cotton planting is down 2 million hectares compared to mid-July last year. That is the best news India'stextile industry has had in weeks. A smaller crop is the only glimmer of hope in the surplus-riddled year that stretches ahead for all.
The new marketing season that starts October 1 holds little cheer. Instead of prices rising as arrivals dwindle, cotton wholesale prices have crashed below theMSP.Farmers who switch to soyabeans, chillies or rice will be the lucky ones. Those who still believe cotton is white gold will find few takers for their harvest this summer. Worse, even government-owned Cotton Corporation of India won't come to the rescue. It lost all its money betting on a one-way rise in cotton prices this season.
When prices crashed in April and buyers defaulted, it was left naked and shivering holding 1.5 lakh bales that had lost half their value. Unless banks urgently infuse cash, it can't mop up the 9 million bales likely to go abegging after October. Ginners, who bought every bale on sight when prices were rising, are also reeling from the blow of spinners going back on their word.
Global demand is desultory. China no longer needs Indian cotton as it has plenty. Australia will supply other south-east Asian countries. Bangladesh will continue importing from India, but hardly enough to set the market on fire.
Spinners are equally in trouble because their high-pricedyarn supply still exceeds demand. Foreign markets are depressed. Domestic demand will remain deflated till the Tiruppur hosiery cluster cleans up its act and re-opens for business. With the Jayalalithaa government refusing to play ball, that could take another 10 months.
Clothing and fabric companies will find it impossible to sell substantially more to consumers here and overseas hit by inflation and worried about the future. Higher price tags could hit sales in a cut-throat price sensitive market. Foreign brands have begun sourcing from Vietnam and Indonesia where cost of production is lower than India.
Government compounds this mess. Agriculture ministry wants free cotton export but doggedly refuses a reality check on its crop estimates. This obfuscates the demandsupply equation. Textiles ministry is so cowed by industry's demand for cheap raw material that it resists export, causing delays. Commerce ministry has streamlined export procedures so enthusiastically that it now faces 84 court cases. Together, they confuse, raise and shatter market expectations.
Can the coming season be salvaged? Sure. But only with three ground rules. First, accurate assessment of crop size so that business can be planned better. It is time to junk Cotton Advisory Board meetings, where numbers are massaged and "negotiated" between different ministries and industry, and adopt a more scientific method a la USDA.
Secondly, a trade policy that ignores the fluctuating fortunes of warring lobbies. Beyond a minimum stocks-to-use ratio (a percentage, not a fixed number), cotton and yarn export should be free. The market will find its equilibrium. Thirdly, no government interference. Fibre doesn't need more EGOMs but fewer. When the market for cars, white goods, and other items of daily consumer use operates perfectly without a separate ministry, what is the big deal about clothes, towels and bedsheets?
