CAI chalks out plan to combat the lockdown crisis in the Cotton industry
By Venkatesh Raghavan*
Mumbai: To overcome the spate of incidents where buyers were unable to honour the forward sales contracts owing to the Covid 19 pandemic lockdown, Cotton Association of India (CAI) has sought to make one all India cotton contract with the support of all the 12 cotton growing states and their regional associations.
“The move will be set afoot soon and will ensure smooth running of the domestic and international cotton business in the country,”CAI president, Atul Ganatra, said here.
Ganatra has requested all the regional associations presidents to support and inform their state ginners and trades to make timely payments to the cotton brokers of their brokerage and support them in this difficult time. He also briefed Union MSME minister Nitin Gadkari that the CAI has already recommended 8-9% duty drawback on cotton and cotton export. The recommendation has been forwarded to the textile minister and also the finance minister. He further requested that duty drawback should be given to the entire cotton value chain. “Such incentives will enable us to emerge from the shadows of the huge carry forward stock problem,” Ganatra elaborated.
The talks were conducted in a recent webinar organized by the Maharashtra Ginning Association with the Union MSME minister Nitin Gadkari and President Cotton Association of India (CAI), Atul Ganatra to sort out the crisis situation faced by the textile sector including spinners and cultivators of raw cotton.
The CAI in its communication with Gadkari stated that the crop estimate for cotton season ending, October 2019 stood at 354.50 lakh bales. It also referred to its earlier May revision which anticipated a carry forward in consumption resulting from the ongoing lockdown and placed the consumption at 330 lakh bales. The revision however, was again subject to rectification as the Cotton Corporation of India (CCI) continued purchasing the arrivals in May and June. This led to the rework of the figures estimated in the month of May. Earlier, CAI had reduced the consumption from 331 lakh bales to 280 lakh bales down by 51 lakh bales in its May month meeting. At present, CAI has written a letter to the textile commissioner and is awaiting her response for releasing the latest consumption figures.
On the farming front, 104 lakh hectares of cotton sowing has been completed. In the previous year, the corresponding figure stood at 127 lakh hectares. CAI reported from the ground that this year, 82% of sowing has been completed. The apex body for cotton also anticipated that there will be reduction in sowing in states like Gujarat which usually accounts for 30% of cotton crop in India. It also observed that the crop condition in all the cotton growing states is good.
CAI continued its communication with Gadkari stating “The lockdown that has been enforced may result in a reduction in consumption by 50 to 60 lakh bales. This will precipitate a carry forward stock of cotton by 30 September 2020. The carry forward of excess stock will act as a boon to the cotton spinning industry.”
Dwelling further on the availability of cotton at cheap rates, Indian spinning mills will be able to sell yarn in export at reasonable rates and withstand the competition in the global markets. The CAI report also said, due to the current situation that is prevalent, Indian cotton will be available cheaply for the forthcoming year or two. CAI termed it as a golden period for the Indian spinning mills.
CAI also pointed out that in the previous year, the Sino-US trade war and Covid 19 pandemic in the current year has resulted in heavy losses to the textile industry. It also sounded a cautionary note to all cotton ginners and spinning mills to take all precautions to avoid further losses in these tough times.
The webinar report also touched on the Minimum Support Price (MSP) for cotton that will be determined by the approach the farmers use to offload their stocks and when CCI will pitch in to buy cotton at MSP. The two factors compounded will set the direction for the next season’s cotton rate.
If CCI will start purchases from October month at MSP rate then new cotton prices will be higher and due to that Indian spinning Mills may buy entire CCI and Maharashtra federation stock bales for their consumption of the six-month period from July to December of 150 lakh bales. The CAI anticipated that if this situation prevails, then the CCI will be able to unload their entire stock easily in the coming months.
As on today Indian cotton is the cheapest in the world and it is sold at discounted rates in the world market. The coming few months however, can witness a change in this position and Indian cotton prices in the global market may get sold on at par rates instead of discounted.