“Thus, MSP turned out to be maximum support price in this case! The textiles industry, which was already in one of its worst crises because of the global and domestic demand contraction, was in no position to buy cotton at these prices. Thus nearly half the crop that came to the market had to be bought by procurement agencies, mostly by CCI. ..The discount scheme introduced for disposal of procured cotton only worsened the situation, as it was available only for bulk purchases and the discount increased with the quantity purchased. Since mills get bank loans for purchase of cotton only for a limited period, their ability to buy bulk quantities is constrained by their capacity to consume cotton within such period. In the event, most of the discounts went to cotton traders. ..While international prices of cotton crashed following the economic slowdown, CCI kept their sale prices high with the result that traders who had bought cotton from CCI earlier could dispose of such cotton at significantly higher prices. In fact, increase in cotton prices by CCI substantially outweighed the discounts introduced by them. Meanwhile, the department of commerce came up with an export incentive of 5% for raw cotton, giving another option to the traders to sell their stocks to the global competitors of Indian textiles industry at lower prices. ..Have the procurement agencies been fixing cotton prices on the basis of international price trends? A comparison between Cotlook A Index, which is the universally accepted yardstick for international cotton prices and the sale price of CCI for Shankar 6, which is the standard variety of Indian cotton, will bring out the true picture. ..On January 2 this year, Cotlook A Index was at 57.60 cents per pound and CCI’s price for Shankar 6 worked out to be 58.25 cents. CCI’s prices continued to be marginally higher than Cotlook A Index until the first week of March. However, by mid-March, CCI’s price has been increasing substantially faster than Cotlook A Index. By May 22, CCI’s price has reached 66.38 cents, as against the Cotlook A Index of 62.25 cents. ..The MSPs and the way they have been implemented have made both our cotton and cotton textiles uncompetitive in the international markets. We exported 85 lakh bales (lbs) of cotton during the last cotton year. This year, exports may reach only 50 lbs even according to the ambitious official estimates. ..Cotton imports are bound to increase this year. Cotton textiles exports during January 2009 registered a negative growth of over 27% in dollar terms, compared to January 2008. Also, the Index of Industrial Production data show that production of cotton textiles during March ‘09 declined by 10.6% compared to March ‘08. ..The survival and growth of the textile industry, which employs 35 million people, should be a concern of society as a whole. .
Source:The Economic Times