The cotton sector

The Cotton Crop Assessment Committee (CCAC) has revised cotton estimates for the current year upward - from the original 12.22 million bales to 12.598 million bales. Those who may understandably consider this as a positive development need to temper their optimism for two major reasons. First and foremost the price of cotton and textiles in the international market is down and it is unlikely that export of raw cotton or its associated value-added items would, like last year, generate as much export revenue. The Economic Survey 2010-11 acknowledged that between July and April 2010-11 export of raw cotton in terms of foreign exchange earned increased from the previous year's 194.1 million rupees to 263.6 million rupees, cotton yarn from 1.2 billion rupees to 1.7 billion rupees, and cotton cloth from 1.5 billion rupees to nearly 2 billion rupees. Other value-added products like knitwear, bed wear, towels, ready-made garments and made-up textiles also witnessed an increase in export revenue last year attributed more to the rise in the international price of the items rather than a rise in the quantity exported. The survey analysed these favourable export statistics by stating that "the impact of rising international prices is more pronounced in cotton-based textile group among all categories of textile sector exports. Moreover higher external demand especially from the European Union and US combined with improved availability of raw material inputs also played a significant role in overall increase in textile export receipts. Textile sector also benefited from the currency appreciation and increased labour cost in its competitor countries." Secondly and equally importantly is the fact that the higher cotton crop estimates are not likely to translate into any major rise in the output of our textile-based value-added products this year for the simple reason that the country has been unable to resolve its energy crisis for the fourth year running. Electricity, a key input for most industrial productivity, remains in short supply and with elections scheduled latest within a year and a half the government continues to take politically sound but economically unsound decisions that are likely to worsen the energy situation. These decisions include expanding the domestic gas network reportedly by 200,000, and periodically diverting scarce money to the energy sector to meet its short term liquidity needs while continuing to ignore the inter-circular debt that, if resolved, would free government resources for other sectors. Few now actually endorse the government's claim that the energy sector's problems can be laid entirely at the doorstep of the former government mainly because of its support for the controversial rental power projects (RPPs) in spite of all the flaws that are no longer based on a theoretical analysis but on concrete available data (for example agreeing to pay for optimum generational capacity even when the RPP is unable to operate at that level due to the failure of the government to provide gas). In addition the government's failure to select and begin implementing a strategy, (several strategies are gathering dust in relevant ministries) that is designed to tackle existing problems continues to plague the sector. The Minister for Textile Industry during the CCAC meeting urged farmers to increase yield per hectare and emphasised the need to ensure appropriate quality and safety in pest management. These are all salutary exhortations however, what the government must acknowledge is that raising the support price of cash crops may increase the crop under cultivation and, weather permitting, may actually increase output. However, it is the international commodity market that would determine price and, subsequently, our export earnings. True that higher value addition would increase export earnings, however, cotton and related products operate within perfect market conditions implying that international demand and supply would determine its price. In case of a global recession, and the world economies are continuing to operate within a recessionary phase, our capacity to raise export earnings through a rise in textile earnings is therefore unlikely in 2011-12. The solution is evident: ensure energy supply meets industrial demand and support non-traditional exports. Unfortunately given the scale of security issues and energy problems the government has yet to turn its attention towards these critical sub-sectors. To reiterate the solutions are available the political will to implement them is not evident. Copyright Business Recorder, 2011