The Indian cotton industry has sought incentives and an import duty cut for cotton to bolster the crisis-ridden mill sector in the light of a slump in exports and weak prospects for the new crop. Garment exports have shown a decline in the first quarter of FY23, and several mills are facing difficulties in the absence of sufficient orders.
Though cotton arrivals in the market have improved, Indian products are still higher priced in the market because of higher production costs.
For the April-June period of FY24 readymade garment exports are down by around 18 percent at $ 3.69 billion from a year earlier. "Our products are not competitive as the production cost is higher. We need to address issues like raw material and capital costs, interest rates etc.," said Dr K Selvaraju, Secretary General of The Southern India Mills Association (SIMA). In FY23, RMG exports had shown a marginal increase over the previous year, at $16.2 billion.
Though cotton is available at a cheaper rate abroad, the 11 percent import duty makes it costly. Last year the government had given import duty exemption till October with the cotton prices zooming to Rs 1,00,000 per candy. The import target for this year is 15 lakh bales, which might be difficult to meet with high import duties.
The industry has been arguing for duty exemption this year to cut costs as there is a downturn in demand. An Andhra Pradesh-based spinning mill owner said that nine out of 60 mills in the state had already shut down and another 10 to 15 were on the verge of closure. According to him, unless the government provides incentives such as subsidies or a moratorium on loans and cuts in import duty, it will be difficult for the mills to survive.
There has been a delay in the arrival of cotton in the market; probably due to the drop in prices from the high levels. Usually, 90 percent of the cotton arrivals happen in the first six months of the cotton year, which starts in October. "This year the arrivals were only 50 percent till March. It has picked up in the last couple of months and has reached around 322 lakh bales (170 kg each). The farmers are holding some stock," Selvaraju said.
The Cotton Corporation of India (CCI), a government body, has projected a production of 342 bales for 2022-23 (October to September) against 312 lakh bales in the previous year. According to Sanjay Kumar Panigrahi, CGM of CCI, currently, the arrivals are good at 22,000 to 30,000 bales a day.
"Except in Punjab, Haryana and Rajasthan where weather conditions have caused problems, the output is normal in other states," he said.
However, the Cotton Association of India (CAI), comprising various stakeholders in the trade, has maintained the production projection at 311.18 lakh bales in its latest estimate.
"These discrepancies arise because there is no real mechanism for ascertaining the exact nature of crops. But I think the crop is much higher than CAI projection," said Umang Patodia, MD of the GTN Group.
Prospects for the cotton crop for 2023-24 (October to September) appear weak right now.
"Heatwave in Haryana and poor monsoon rains in South India and Maharashtra could affect the next crop. As a result, cotton prices are showing a rising tendency. It has moved up by about Rs 2,000 to Rs touch 63,000 per candy (356 kg each) in the last few days," Pratik Gadia, Founder and CEO of The Yarn Bazaar, a B2B online platform.
Though cotton prices have dropped from record levels last year, the industry still feels it is on the higher side.
Almost 70 percent of India’s garment exports go to the US and European markets, where high inflation and the Russia-Ukraine war have affected purchases. "Unless we improve productivity, we may not be able to compete with Bangladesh and Vietnam. These countries have lower wages and higher productivity. Since we cannot lower wages, we have to improve productivity," said Ajay Singla, Secretary General of the Garment Exporters and Manufacturers Association.
According to Selvaraju, India needs to raise the productivity of cotton crop as well by revalidating the multitude of seeds available. "We have 1,500 types of seed, many of which are not effective. Our productivity has fallen by 25 percent."
But there have been some signs of revival in the last couple of months. Yarn exports and shipments from knitwear hub Tiruppur have improved slightly. "We got more orders in July and August, helping us to clear inventory to some extent. If the trend persists, we may reach the same level of export as last year," said K M Subramanian, Tiruppur Exporters Association Chairman.
In FY23, knitwear export from Tiruppur was Rs 34,350 crore.
The industry is expecting domestic demand to pick up with the onset of the festival season by October. "Festival season may perk up the demand and in the absence of sufficient arrivals in the market, it could fuel further increase in cotton prices," Gadia said.
Apart from an import duty cut, the industry is waiting for free trade agreements (FTAs) with more countries, particularly with the UK. The Union Textile Minister, Piyush Goyal, recently stated that India is actively pursuing FTAs and comprehensive economic partnership agreements to increase textile exports.
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