Cotton: Let market forces prevail

Hardly a day goes by when the government is not lambasted for its lackadaisical approach towards pressing economic and social issues confronting the nation. So it is ironic that sometimes, the best course of action for the government is to stand back and do nothing. The recent conflagration between PCGA and APTMA over relatively stoic cotton prices came to a head in recent days and finally warranted the Presidents attention in the form of a video conference with PCGA. Media reports quoting sources from this meeting have now asserted that the President turned down PCGAs request for government support to growers and ginners in the form of a support price or intervention by TCP. Setting aside any contrarian arguments about the clout enjoyed by textile mill owners or cotton growers; the decision to let market forces decide the trend of cotton prices, is laudable. For once, the arguments put forth by representatives of the value-added textile manufacturers are sound. FBS data reveals that exports of raw cotton in quantity terms have mushroomed by 154.3 percent from FY08 to FY11. However, over the same period, quantities exported for readymade garments and bed wear fell by 14.5 percent and 7.8 percent, respectively. The contraction in export quantities has become even more acute in the recent past. Quantities of exports from all value-added textile sectors have plummeted in the current fiscal when compared to the same period, in FY11. The increases in exports under the same heads visible in the trade account are attributable to rising prices of textile products and only serve to cloud the dismal lack of improvement in quantities exported by the textile sector. The utter lack of trade development on the part of the countrys textile sector is largely to blame for this stagnation. But given the plethora of shortcomings including the power crisis, political uncertainty and dismal law and order situation, pinning the blame is fodder for another debate. However, the fact is that any significant increases in the prices of textile products would pose severe threats to the countrys trade account. Given the fact that India and China have built significant reserves of cotton, staying competitive in international markets will be no mean feat of local manufacturers. At a time when other sources of precious foreign exchange are fast running out of steam, the government has done well, just by refraining from poking its stick in the demand-supply tussle. Whether the growers plight demands policy action or not; the government has no business affecting market forces, especially in the cotton conundrum.

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Textile group exports
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                                             (July-Oct)
                                 Unit      FY11      FY12     chg
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RAW COTTON                        M.T    31,406    35,988     15%
COTTON YARN                       M.T   170,887   150,864    -12%
COTTON CLOTH                   TH.SQM   684,465   627,468     -8%
COTTON CARDED OR COMBED           M.T    10,107       119    -99%
YARN OTHER THAN COTTON YARN       M.T     3,560     4,628     30%
KNITWEAR                       TH.DOZ    43,023    39,500     -8%
BED WEAR                          M.T   109,820    88,122    -20%
TOWELS                            M.T    59,368    55,107     -7%
TENTS,CANVAS & TARPULIN           M.T     2,432     6,819    180%
READYMADE GARMENTS             TH.DOZ    10,727    10,096     -6%
ART,SILK & SYNTHETIC TEXTILE   TH.SQM   157,621   136,288    -14%
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Source: FBS