India Budget 2012-13: After export ban, will there be any surprises for cotton industry?


NEW DELHI (Commodity Online): After a surprise decision taken by the India Commerce Ministry to ban cotton exports despite a bumper crop, sufficient inventory with textile mills and lackluster global demand, the imposition of a proposed excise duty hike on textile industry could create resenment from the textile industry as well.

For long, the government has been in a dilemma with respect to cotton exports- whether to support growers or the textile industry and any decision taken invites the ire of either of the stakeholders in the industry that provides employment to a large number of people in India.

According to Jagannadham Thunuguntla, Head of Research at SMC Global Securities, cotton prices have corrected from its peak in March 2011 at Rs 61,7000 per candy to Rs 34,000 per candy now but still remains high. “ Going forward cotton price is expected to fall further on account of 10% increase in production in the 2011-12 season and enough inventories with the millers. The slowdown in global demand for yarn and ready made garments would also exert downward pressure in the cotton price.

At Multi-Commodity Exchange of India (MCX) cotton March contract has fallen by by 1.92 % to Rs 16830 per bale of 170 kg this week at close of trade on Wednesday. India’s cotton production has been revised to 340 lakh bales from 345 lakh bales according to previous estimate by Agriculture Ministry.

The ban on exports was imposed on the basis of recommendations of the committee of secretaries. It was intended to check the surge in cotton exports which, it was feared, would leave inadequate stocks for the Indian textiles industry to meet its production targets.

According to the Textiles Ministry, till February 2012, 91 lakh bales (170 kg each) were shipped against the export estimates of 84 lakh bales for the current cotton season (October to September). It feels that at this rate the exports would reach 100 lakh bales by mid-March 2012. The government banned the cotton exports till further notice, amidst fear of shortage of the natural fibre in the domestic market and apprehensions of hoarding in warehouses abroad. H

According to D K Nair, Secretary General of the Confederation of Indian Textile Industry (CITI), the ban on cotton exports is surprising as the industyr has enough supply of cotton to meet the present requirements and demand for textiles is weak in domestic and global markets.

After the resentment created among traders and growers following the export ban on cotton, it could spread to textile inudstry if the proposed 2% hike in excise duty were to be announced in the Union Budget for 2012-13 by Finance Minister Pranab Mukherjee on March 16. The year 2011 was not a good year for textile industry faced with higher interest rate burden, falling global demand and quite high cotton prices. The hike in excise duty could negatively impact the industry, according to Jagannadham Thunguntla, SMC Global Securities. Arvind Ltd, Alok Ind., Century Textiles, Vardhman Textiles, Bombay Dyeing among others could be negatively impacted by such a move, he added.

However, the industry expects interest rate subsidy of 5% on all capital investments in man made fibres and extension of Technology Upgradation Fund (TUFS) for the polymerisation and spinning in the manufacture of technical textiles, fibres and yarns which is favourble for the sector.