India’s cotton stock dwindling raises concern for textile mills

India, the largest producer of cotton but its closing stock for the 2016-17 cotton season (October-September) is projected at 13 lakh bales (a bale is 170 kgs), the lowest in five years. The country doesn’t have sufficient surplus cotton however strong exports are leading to forced imports at high prices at end of the season. Hence their core advantage is getting eroded, said Sanjay K Jain, chairman, Northern India Textile Mills’ Association (NITMA).

If exports in FY17 are at the same level as that in 2015-16, then not much cotton would be left for mills despite the forecast of high imports, industry officials said. The 2016-17 cotton balance sheet is very precarious as sowing is 10-15% less and opening stock is also low.

The country’s stock-to-use ratio, at 12-15%, is one of the lowest in the world. But the production began to fall in the last two years due to a slew of factors, including pest attacks, poor rainfall and stagnant yield levels. The production touched a record high of 398 lakh bales in 2013-14 but has now reduced to about 338 lakh bales.

Competitors such as Pakistan, Bangladesh, Vietnam and China are buying 20-30% of the Indian crop, forcing the industry to import, Jain said. Pakistan has emerged as the largest buyer of Indian cotton purchasing over 25 lakh bales in the 2015-16 season. The country has exported over 65 lakh bales of cotton during the season.

Some urgent steps need to be taken to ensure that at least 1 ½ months of cotton consumption, or about 40 lakh bales, stays within the country, he said. Cotton prices have jumped by over 50% between April and July. This forced the industry to resort to imports as international prices were ruling lower than domestic prices.

India is one of the few nations where textiles is still skewed in favour of cotton (over 60%) as cotton based products have been the mainstay of Indian textile over the decades while the share of cotton is less than 40% in comparison to Man-made fibres which have a share of over 60% globally.

NITMA chairman said that the government should allow funding for cotton stocking at subsidized rates of 2% below the base rate for October-April so that the industry can stock cotton and ensure farmers get a better price.

Cotton Corporation of India should play a constructive role by creating a buffer stock when prices are low and ensure cotton security and price stability by keeping speculators at bay and ensuring prices are in parity to international prices.