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Controversy over CAB’s estimate of cotton imports

At the recent meeting of the Cotton Advisory Board (CAB), most members were very much surprised, when textile commissioner Subodh Kumar who was presiding over the meeting, announced that, according to the estimate, cotton imports the current season might reach 22 lakh bales, which could be only fractionally lower than 22.3 lakh bales imported in the previous season.

The main reason for their surprise was that some of them were placing their estimate of imports in the current season at 16-18 lakh bales and were, therefore, not inclined to accept the textile commissioner’s estimate on its face value. Lower prices in the domestic market were believed to have already applied a virtual brake on fresh imports. Not only this, some of the pending contracts were being settled or cancelled. Furthermore, how could an estimation be carried out when figures of actual port wise arrivals of foreign cotton were not available in the absence of the system of registration of imports with the textile commissioner’s office.

It would appear that the textile commissioner had based his estimate, probably on the basis of consumption of foreign cotton by textile mills in the first seven months of the current season and further assumption of likely imports on the subsequent months. However, some members of the CAB did not go by such logic and doubted whether the textile commissioner’s estimate was rational or realistic. According to them, the Cotton Corporation of India (CCI) had placed its import estimate lower at 20 lakh bales. However, the CCI is not much involved in cotton imports.

Those who are actually indenting foreign cotton for textile mills are leading traders and they are all members of the East India Cotton Association (EICA) which can therefore be better informed about likely imports of cotton during the current season. It might be interesting to note that the EICA had placed its estimate of cotton imports in the current season at 18 lakh bales. However, the textile commissioner brushed aside this estimate and stick to his own.

Controversy over this subject has continued even after the meeting of the CAB. Some trade circles were heard arguing that it was not clear to them whether the figures of consumption of foreign cotton reportedly given out at the CAB meeting, included any cotton actually imported during the previous season.

Moreover, even if these figures represented imports made during the current season, it might be illogical and fallacious to assume any imports on the basis of this trend, unless it is proved that other conditions affecting imports have remained unchanged. Actually conditions affecting imports have undergone considerable changes of late. Initially foreign cotton was comparatively cheaper and mills were inclined to indent for it.

Recently, however, the price parity of the Indian and foreign cotton has undergone a sea change. Indian cotton has become substantially cheaper than the foreign fibre. Under this situation not only fresh transactions have come to a virtual halt, but several pending indents are being settled or cancelled. This put a question mark particularly on the textile commissioner’s assumption on likely imports during the remaining months of the season. Had the system of cotton import registration been in operation, more reliable data at least with regard to actual imports so far, could have been available.

When the import duty on cotton was increased to 10 per cent from five per cent in early January, a hue and cry was made by the interested quarters that imports would dry up as a result and many mills might be forced to close down.

These fears have been belied. Actually, the expected increase in cotton production this season over the previous one, and unduly large imports seem to have penalised the Indian cotton cultivator who endeavoured to increase production.

This is evident from the fact that cotton prices have on an average fallen 20-25 per cent compared to those in the previous season and in many cases have remained glued to the minimum support levels.

Despite the energetic price support operation by the Cotton Corporation of India, growers in certain regions were forced to sell their products even below the support prices. On the whole, the cotton grower has been among the worst suffers this season. Under this situation, the projected end season stock of 35 lakh bales was going to affect the marketing of cotton not only in the current season, but in the coming season as well. It is one of the functions of the CAB to make suggestions to the government for the smooth marketing of cotton.

In the past, when the cotton season used to run from September to August, it was generally desirable to have end season stock equivalent to the requirements of first two lean months of the new season. Now when the cotton season runs from October to September, the end season stock of more than 1.5-month requirement (i.e 18 lakh bales) is clearly unjustified. But the CAB apparently failed to apply its mind to the problem and suggests some remedial measures, such as immediate hike in import duty.

It is a known fact that some other countries like the US which are strong advocates of the system of free trade and competition are heavily subsidising their cotton farmers. However, in India cotton cultivators are denied such subsidies, as well as adequate protection against imports.

This is evident from the fact that while, according to the Economic Survey, other agricultural commodities were given in 2001-2002 a much higher protection in the form of import duties ranging from 30 per cent to 75 per cent, in the case of cotton whose bound rate for import duty was 100 per cent, while the actual rate of import duty was just around 10 per cent. Thus helping foreign cultivators to sell their cotton in the domestic market at the cost of the Indian farmers. The CAB has failed to consider this issue.

— M D Dewani