As demand for offloading cotton stocks held by the government intensifies, trade and apparel industry executives believe state-run procurement agencies have no reason to sell stocks at heavy losses to benefit spinning mills, which are already raking in profits by raising yarn prices at a pace vastly out of sync with the price rise in the fibre.
The government may incur losses to the tune of R1,100 crore if it offloads cotton stocks worth R5,800 crore now despite a recent pick-up in the fibre's price as it has to factor in costs on interest payment against bank loans, staff, insurance and storage, said a senior official.
Earlier this month, Confederation Of Indian Textile Industry (CITI) deputy chairman SV Arumugam asked the government to offload cotton stocks procured from farmers as the fibre's prices had “increased steeply because of an artificial shortage of cotton in the market, which is created partly by hoarding of cotton by traders, and partly by the non-release of procured cotton by the Cotton Corporation of India (CCI) and other procurement agencies”. However, the traders' body — the Cotton Association of India (CAI) — disputes CITI's claim, saying the 10% rise in domestic cotton prices over the past six months or so is quite ‘normal’ compared with a 20% spurt globally. "The mandate of procurement agencies is to provide minimum assured returns to farmers to prevent distress sales by them, but the government isn't obligated to offload the stocks at losses so that bulk consumers make gains," said a senior government official.
The CCI has piled up 2.2 million bales of cotton, which is less than 7% of the crop expected in the year through September, a government official from a cotton-producing state said. The level of cotton procurement is too ‘low’ to cause any ‘scarcity’, he added. Moreover, purchases by textile mills are still trailing the daily cotton arrival of 125,000 to 150,000 bales in the domestic market, which negates their claim of a domestic shortage.
"Although cotton prices have risen by 10% in recent months, yarn prices have shot up by 25% during the period. Normally, price rises in both the items should be in sync, which is not the case now. So we are requesting the government to allow duty-free yarn imports," said Rahul Mehta, president, Clothing Manufacturers Association of India.
CAI president Dhiren N Sheth said cotton prices are rising because of the spurt in yarn