Last Monday, the Government of India banned all cotton exports. On Friday, the order had been partially rescinded to allow cotton cleared by customs before March 4 to be exported. Finally, the export ban order was rolled back yesterday.
India, which is the world’s second largest producer of cotton, is set to supply, as per the US Department of Agriculture estimates, 17 per cent of global exports in 2011-12. Before the ban, Indian exporters had already shipped a record 9.5 million bales — well above the government export surplus quota of 8.4 million bales — in the year starting October 2011. This excess led India’s Directorate General of Foreign Trade (DGFT) to ban shipments.
“The decision to ban exports took into account the trend of domestic consumption and depletion of domestic availability,” the DGFT said. Reduced domestic availability leads to higher input costs which affects the export competitiveness of India’s textile industry. Textile industry is India’s largest employer after agriculture and contributes nearly 4 per cent to the country’s gross domestic product.
The government’s panicky decision also seemed to be driven by fears that China was hoarding cotton in bonded warehouses. As per the US Department of Agriculture, China currently holds reserves estimated at around 15 per cent of the global requirement. More than 70 per cent of India’s cotton exports go to China, which account for roughly one-third of the Chinese cotton imports. Because Indian cotton is cheaper than US cotton, a previous Indian ban on cotton exports in 2010 had resulted in heavy losses for Chinese textile producers. The average price of Indian cotton exported to China last year was $2,615 a tonne, compared with $3,000 a tonne for US cotton.
China reacted sharply to the ban with its cotton industry association saying it was “irresponsible” and would disrupt the global market. Bangladesh also termed India’s ban on cotton export as “unfortunate”, saying the move is against the norms of international trade.
But the decision to roll back the cotton exports ban was forced by domestic pressure. Cotton has been a very sensitive issue domestically with farmers having borne the brunt of some acute crop failures in the last few years. Following the ban, prices crashed to levels around Rs 3,000 a quintal from Rs 4,200 a quintal last month.This brought the cotton trade to a near halt in Maharashtra, Andhra Pradesh, Gujarat and Karnataka.
Gujarat Chief Minister, Narendra Modi, wrote to the Prime Minister demanding the lifting of the cotton export ban while Maharashtra Chief Minister, Prithviraj Chavan also raised the issue in Delhi.
Most importantly, Union Agriculture Minister, Sharad Pawar expressed his displeasure over being “kept in the dark” about the ban and asked for its reversal. Imagine, the decision to ban export of an agricultural product was taken without the knowledge of the Union Agriculture Minister! This was because the ban was imposed by the DGFT, which comes under the Commerce Ministry. The mess has been in the making for last two years with frequent changes in decisions on cotton exports. Exports were restricted in May 2010, then allowed again in August 2010, but their registration permissions were shifted from the textile commissioner’s office to DGFT in October 2010. This led to imposition of export ceilings for cotton by the commerce ministry.
Frequent changes in export policy have hurt India’s credibility in overseas markets and led to disputes. They cause turbulence in the Indian markets and dissuade farmers from growing cotton. Indian textile exporters, competing with Bangladeshi and Pakistani exporters — both with the advantage of favourable European import tariffs — struggle in such an environment.
While the commerce ministry is focused on the textile industry, the agriculture ministry is concerned about the farmers. Evidently, the two ministries of the same government are operating in their own silos. The state governments have been kept completely out of the loop in this decision-making. After it blew into a public controversy, the Prime Minister had to intervene to start inter-ministry consultations — what ought to be a routine process in government. But it should not come as a surprise to anyone. After all, governance has been conspicuous only by its absence in the UPA-2 government.