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Indian textile exports become noncompetitive as domestic cotton prices increase 6% in July

2021-07-27 15:46:18
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Indian textile exports become noncompetitive as domestic cotton prices increase 6% in July

he South Indian Mills Association (SIMA) has said that the steep rise in cotton prices in the domestic markets has made Indian textile exports uncompetitive.

SIMA has demanded removal of 10% duty on import of cotton as the prices in the domestic markets increased 6% in July.

"The downstream exporting sectors, garments and made-ups segments, are finding it difficult to meet their export commitments due to the disruptions caused by lockdowns, shortage of workers and high logistics costs. In this scenario, the steep increase in Indian cotton prices has further destabilized the Industry and is making our exporters uncompetitive. The recent hike in price of Rs.3800/- per candy (355 kgs) of cotton in a span of 15 days by Cotton Corporation of India (CCI) and the 10% import duty levied in the Union Budget 2021-22 on cotton has enabled the trade to increase prices abnormally and this trend is continuing. Such steep increases are a severe blow for the entire cotton textile value chain," said a release from SIMA.

Ashwin Chandran, Chairman, SIMA said, "The cotton prices have been increasing rapidly since January 2021 and skyrocketed during the current month. “CCI has increased the cotton price from Rs.51,000/- to Rs.54,800/- per candy of 355 kgs since the beginning of July which has helped fuel the market. The market price of Gujarat based Sankar-6 cotton that prevailed at Rs.43,300/- in January 2021 has increased to Rs.56,600/-, an increase of over 30%."

Chandran pointed out that the steep increase in cotton prices will not only affect the industry and squeeze margins, but will also lead to higher prices in apparel and textile goods for our domestic consumers, who are already burdened by the ill-effects of the COVID-19 pandemic.

"There is no parity between the current cotton prices and yarn prices. This will in turn force spinning mills to increase yarn prices in the coming period to avoid incurring losses. CCI had procured over 25% of the Indian cotton crop under Minimum Support Price operations. The cost of this procurement would work out to Rs.43,000 per candy. The current selling price is abnormally high. Even if the carrying costs and reasonable profit margins are taken into account, CCI could have maintained prices at a reasonable level of around Rs. 48,000 per candy to maintain stability. Though CCI offered a three months lock-in period for bulk purchase, most of the spinning mills could not derive advantage from this due to the liquidity crunch and uncertainties in prices while the multinational cotton traders could take full advantage with hedging facilities and cheaper funds. They have purchased the major volume of CCI cotton at lower prices," claimed Chandran.

“Taking advantage of the 10% import duty levied on cotton, the trade has encouraged price speculation and the domestic prices in certain varieties such as ELS cotton has already exceeded the international price making our industry uncompetitive” alleged SIMA Chairman.

According to SIMA, though the Committee on Cotton Production and Consumption in its meeting held on April 30 had estimated 288 lakh bales as the mill consumption and 119 lakh bales as the closing stock for the current cotton season presuming normal functioning of the mills after the first wave of COVID-19, the second wave lockdown restrictions especially in States like Tamilnadu brought the industry to a grinding halt for more than a month and consumption might drop by 15 to 20 lakh bales. "Withdrawing 10% import duty levied on cotton will help change the market sentiments and avoid further damage to the cotton textile value chain. Since the industry imports only around 11 to 12 lakhs annually (less than 4% of annual consumption) that too the cotton varieties not grown in India, the import duty does not help the Indian cotton farmers and is a big hindrance to the Indian Textile and Clothing Industry," said Chaindran."

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