India will now ban fresh cotton exports and allow only quantities already registered but not shipped, its trade secretary said on Monday, as the world's No 2 producer continued to flip-flop with its trade policy, fuelling market uncertainty.
The trade minister said on Sunday the government would lift a surprise ban on cotton exports imposed on March 5, after influential Farm Minister Sharad Pawar, a coalition ally, opposed the move and asked Prime Minister Manmohan Singh to revoke the ban.
China, India's biggest customer, also criticised the move. "No new registration certificates will be issued," Rahul Kullar told reporters on Monday. The controversial ban comes at a time when the global market for cotton is already over-supplied. The stoppage was triggered by concerns about domestic consumption and availability, the government had said.
Khullar said a panel of ministers is likely to review the ban on exports - which had already hit record levels of 9.5 million bales - in two weeks. Traders and analysts said the latest confusion would further damage the reputation of India as a credible, long-term supplier of commodities.
"The agricultural market remains very much at the mercy of government policies ... the ban was a surprise and as a result of that prices rose significantly on that particular day," said Luke Mathews, commodities strategist at Commonwealth Bank of Australia. The latest decisions mean exporters can ship out 2.5 million bales committed to overseas sales before the government ban and avoid any defaults.
That means India would already be exporting a record 12 million bales of the fibre in 2011/12, 54 percent more than the previous year. Exporters had already been saddled with huge stocks last year after similar government dithering which hurt its image. Traders were dismissive of this, however. The moves prompted calls for India to be more reliable.
"Consistent policy helps create increased reliability and we wish that a very consistent policy is followed and free and unrestricted flow of cotton export is allowed," said Dhiren N. Sheth, president of Cotton Association of India.
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