Cotton-based industries are reeling under the soaring prices of the raw material, and with no end in sight, the crisis has triggered off a series of accusations from varied interest and the industry sending SOS to of no avail. The industry heaved a sigh of relief when the Government finally withdrew the 10% import duty on cotton from 14th April 2022 to 30th September 2022.
Cotton prices sent shock waves across the textile value chain recently, throwing the entire textile industry out of gear, which has sought the government’s intervention by making stock disclosures mandatory, and taking measures to contain speculation. Placating the industry for its demand to scrap the import duty, the Government withdrew the 10% import duty on cotton from 14th April 2022 to 30th September 2022.
Mr. T. Rajkumar, Chairman, CITI thanked the Hon’ble Prime Minister, Mr. Narendra Modi Ji, Hon’ble Union Minister of Textiles, Mr. Piyush Goyal Ji, Hon’ble Union Minister of Finance, Ms. Nirmala Sitharaman, Hon’ble Union Minister of Agriculture & Farmers’ Welfare, Mr Narendra Tomar Ji, Hon’ble Minister of State for Textiles & Railways, Ms.Darshana Vikram Jardosh Ji and all the concerned senior government officials for their kind support for withdrawing 10% import duty on Cotton – 5% Basic Customs Duty (BCD) and 5% Agriculture Infrastructure and Development Cess (AIDC), including
10% Social Welfare Cess (SWC) on both amounting to 11% import duty on cotton – from 14th April 2022 to 30th September 2022.
Mr T Rajkumar said, “it’s a welcome decision and will help the entire textile value chain to fight not only the steep increase in the cotton price due to the imposition of 10% customs duty on the import of cotton but also to meet the requirement of specialty cotton (extra- long-staple cotton, organic cotton, coloured cotton, etc.) to manufacture high-end products for their niche markets in advanced countries”.
CITI Chairman further stated that we also apprised the Hon’ble Ministers that as per the industry estimates, the duty-free import will not exceed 40 lakh bales during the current season. Moreover, it will take three to four months’ time for the imported cotton to reach the Indian textile mills. Since the cotton farmers have already sold their cotton crop of present season and are preparing for sowing for the next season, allowing duty-free import of cotton will not at all affect the Indian cotton farmers. The meetings were fruitful, and the Hon’ble Ministers assured the delegation that their problems will be resolved at the earliest.
Mr Rajkumar further pointed out that MSME segments, including Handloom, Powerloom, Independent Knitting, Weaving, Processing, Garmenting and Madeup, which accounts for over 80% of the total exports have no access for Advance Authorization Scheme and duty-free import of cotton. These are the worst-affected segments, and their capacity utilisation has already dwindled down to below 70%, resulting in huge job losses and a declining trend in the GST revenue.” The Government’s decision to exempt cotton import will boost their sentiments, and help the textile industry to maintain their growth momentum.
CITI Chairman hoped that the T&C Industry would be able to achieve the export target of US$ 16.96 billion (25% increase) set for the cotton value chain and the total textiles and clothing’s export target of US$ 47.029 billion (18% increase) set for the financial year 2022-23 with the help of availability of cotton fibre and other raw materials at internationally competitive prices to the Indian T&C Industry.
There is no reliable data available of cotton stocks maintained by the kapas traders, ginners and traders. “In the case of spinning mills, only around 40% of the mills provide data to the office of the textile commissioner. This gives the cotton traders a chance to hoard stocks and inflating the prices artificially and take advantage of futures trading on commodity exchanges MCX and NCDEX, says Mr. Balkrishan Sharma, Business and Unit Head Spinning, Ginni Filaments Ltd.
“kya karun, kuch samajh nahi aa raha”. (What should I do, not able to understand !!!)
“cotton ne kahin ka nahi chora”. (Cotton left me nowhere …!!!)
“sabko teji mein teji lagti hai aur mandi mein mandi”. (Everyone feels Profit is Profit and Loss will be loss !!)
“koi maal bechkar khush nahi hai aur koi kharidkar khush nahi hai”.(Few are not happy to sell the products, few are not happy to buy the product !!! )
“himmat jawab de rahi hai”. (Courage is the only answer now !!! )
These are some of the on-the-spot reactions that sum up the confusion, panic, fear, uncertainty and unpredictability which is gripping the textile value chain at present. Everyone is watching each other’s face and no one seems to know as to what they should be doing.
Customers are also doing window shopping. Cotton prices skyrocketed from ₹44,500 per candy (of 356 kg) in February 2021 to ₹90,000 per candy recently. Notably, the government had levied the 11 per cent import duty on cotton when prices were nearly half of what they are now. “The steep increase in cotton price and its impact on prices of yarns and fabrics is severely impacting the potential growth of the cotton textile value chain,” said industry participants in a joint statement.
Cotton prices soared in a very short span of time which is defying all the logics. On the other hand, demand from downstream products is not in sync with increase in cotton or yarn prices. Even in yarns, demand in counts finer than 40 is muted. Financial year closing in March also weighed heavily on money availability.
Some unanswered questions are:
1. Will this bullishness in cotton sustain, and if yes then till when, is a million-dollar question?
2. Will it be easy for spinning mills to replace cotton with other products?
3. Is there demand of alternative products other than cotton?
4. Are the arrivals being underreported to maintain bullishness in cotton?
5. Will there be panic buying or customers shall wait and watch?
6. Will spinning mills be forced to close spindleage in the times to come because of non-availability of cotton?
7. Are the figures of 335 lakh bales crop size given by CAI, right?
8. When MNCs are going to start selling 25 lakh bales stocked with them?
9. When Government is going to allow import of cotton without duty?
10. When Government is going to ban cotton trading on MCX, at least temporarily?
The industry opines that the Government need to play major role for ongoing price hike of cotton. Ginners, Traders need to give clarity on stocks. Govt bodies like CAI, CCI need to take front step, Government needs to ask all mills, traders, ginners to share their stock details immediately, reflecting stocks in the system should be mandatory not by choice.
Result of this crisis shared by industry is as follows:
• Industry will be moving from Pure cotton to Polyester Cotton ( PC), Polyester Viscose ( PV) , 100 % Polyester or any other readily available fiber like linen, hemp etc.
• Industry once moved to other fibers, then demand of cotton automatically reduce then cotton stocks will be out , by that time no demand will be there for cotton , its tricky situation.
• Industry need to wait for next crop ie in September 2022, till the time ie in 6 months industry dynamics will change.
• Industry has stopped making counts like 10s, 20s. Industry is moving from 24s count to 30s count, from 15s to 35s count. coarser yarn need less cotton.
• Industry can’t able to make finer count , few products scarcity in market which needs finer counts.
• Industry moving from Combed to Carded Yarns , carded needs less cotton compared to combed yarns.
• July month is very crucial , as by that time many mills will be out of stocks of cotton. Farmer don’t have stocks.
• Corporates like Vardhaman , Nahar will be importing cotton. MNC, few corporate spinning mills will be holding stocks.
• Waiting for rainy season , will get moisture of 6% in season. Quantity and quality issue.
• Right now demand is 1 lac per day and available is 30000 bales per day , this huge gap , So the price is Appx Rs. 100000 / bale for Indian cotton.
• MCX pricing 42000- 43000 per candy which is Rs. 14 to 15 higher than USA cotton.
• Stop trading to MNC stock exchange and MCX now, till the stocks are back.
• Business runs on sentiments not facts.
Earlier in April 1, a Textile and Clothing (T&C) Industry Delegation comprising Members of National Committee on Textiles and Clothing (NCTC), met the Union Minister of Textiles, Commerce & Industry, Consumer Affairs and Food & Public Distribution, Mr. Piyush Goyal, and submitted a Joint Memorandum to allow duty-free import of cotton not only to tide over the present crisis but also to achieve the desired target set for the Indian T&C Industry for the financial year 2022-2023. The NCTC delegation comprised of Mr T.Rajkumar, Chairman, Confederation of Indian Textile Industry (CITI), Mr Narendra Goenka, Chairman, Apparel Export Promotion Council (AEPC), Mr Manoj Patodia, Chairman, The Cotton Textiles Export Promotion Council (TEXPROCIL), Mr Ravi Sam, Chairman, The Southern India Mills’ Association (SIMA), and Mr Raja
M. Shanmugham, President, Tirupur Exporters Association (TEA).
The NCTC delegation thanked the Prime Minister and Hon’ble Union Minister of Textiles for taking numerous path-reaking and historical policy initiatives that enabled India to achieve US$ 400 billion exports that too prior to the scheduled deadline and making India to to become the fastest growing economy in the world.
The total textiles and clothing export increased from US$29.454 billion to US$39.734 billion (estimated) and recorded a growth of 67% in the financial year 2021-2022 in comparison to the previous year. Similarly, the cotton textile exports also recorded a growth of 56% by reaching US$15.056 billion (estimated).
The National Committee on Textiles and Clothing (NCTC) delegation apprised the Minister about the shortage of quality cotton that the Textiles and Clothing (T&C) Industry is facing at the moment on the backdrop of declining domestic cotton production during the current cotton season (around 340 lakh bales of 170 kgs each as against 360-370 lakh bales production in the previous years) and the increased T&C Industry’s demand for cotton (360 lakh bales as against 300 to 320 lakh bales in the previous years) and an estimated export of 50 lakh bales. The Industry delegation appealed to the Union Minister of Textiles to allow the duty-free import of cotton not only to tide over the present crisis but also to achieve the desired target set for the Indian T&C Industry for the financial year 2022-2023.
The NCTC delegation apprised the Minister that the levy of 11% import duty on cotton is affecting the global competitiveness of the Indian T&C Industry, as the cotton traders are adopting an import parity pricing policy. They also apprised the Minister from January 2022, the Indian cotton price is ruling Rs.15/- to Rs.20/- per kg higher than the international price. The T&C Industry is compelled to import high quality extra-long-staple cotton, sustainable cotton, and contamination free cotton by paying 11% duty to meet the export commitments, whereas, the competing countries (Bangladesh, Vietnam, China, Pakistan, etc.) enjoy the advantage of duty-free import of cotton.
The NCTC delegation apprised the Minister that the steep increase in the cotton prices and shortage of quality cotton have resulted in the cancellation of Indian export orders and diversion of the same to Bangladesh, Vietnam, China, and Pakistan by the importers in EU, USA, Japan, etc. They cited India’s share in US bedlinen exports has declined from an average of 55% during 2021 to 44.85% in the month of January 2022. While Pakistan’s share has increased to 25.71% from 20% and China’s share increased to 19.37% from 12% during the same period.
The NCTC delegation also pointed out that the MSME segments, including handloom, powerloom, independent knitting, weaving, processing, garmenting and made-up segments that account over 80% of the exports have no access for advance authorization scheme and duty-free import of cotton. These are the worst affected segments and their capacity utilisation has already dwindled down to below 70%, resulting in huge job losses and a declining trend in the GST revenue.
The NCTC delegation requested to the Union Minister of Textiles that the only option left for the T&C Industry is to allow duty-free import of cotton not only to tide over the present crisis but also to achieve the cotton textile’s export target of US$16.963 billion (25% increase) and the total textiles and clothing’s export target of US$47.029 billion (6% increase) for the financial year 2022-2023. The Indian T&C Industry is optimistic to achieve this steep increase in the target if cotton is
made available to them at an internationally competitive rate.
The NCTC delegation opined that the duty-free import may not exceed 40 lakh bales during the current season. Moreover, it will take three to four months’ time for the imported cotton to reach the Indian textile mills. As the cotton farmers have already sold their cotton crop of present season and are preparing for sowing for the next season, allowing duty-free import
of cotton will not at all affect the Indian cotton farmers. The trade bodies have also highlighted that the spinning mills were left with cotton stock of only 40 days or (41 lakh bales each of 170 kg) as against three to six months’ stock during any cotton season at the end of March. Since more than 90 per cent of the cotton crop is said to have arrived into the market during the
months of December and March, industry players are suspecting a lack of clarity on the data. “Currently, approximately 240 lakh bales of cotton has arrived into the market as against 320 lakh bales that should have arrived by this time,” the industry players said pointing out that 11 per cent import duty has emboldened the traders to hoard cotton in the name of farmers, adopt import parity pricing policy and curtail the global competitiveness of the Indian textile industry.
Cotton yarn prices have risen very steeply in India and in overseas markets in the recent past. There is a huge shortage of yarn globally, with capacities shrinking and acute power and labour shortages in geographies where there is good quality spinning capacity. India has the world’s second largest spinning capacity after China, commanding a share of the global Cotton Yarn market – currently producing over 4700 Mn. Kgs of spun yarn of which over 3,400 Mn. Kgs is cotton yarn.
Cotton Yarn accounts for nearly 73% of total spun yarn production. Indian Spinning Industry is the most modern and efficient in the world. The world’s most renowned Indian Cotton Yarns are available as greige, bleached, mercerized, gassed,
twisted, dyed or an endless range of fashion yarns like mélange, stretch, blends, high twist and so on to meet the different applications in fashion, clothing, home textiles, hosiery, and industrial fabrics. India is the biggest producer of denim in the world with the world-famous brands like Arvind, Jindal, Aarvee, Pratap Spintex, Etco Denim, Raymond and so on.
Today, Indian cotton yarn is widely accepted in International markets as the exporters here regularly meet the needs of importers with unmatched efficiency and economy in countries like USA, Italy, Spain, Japan, China, South Korea, Taiwan, Bangladesh, Vietnam etc. The lockdown caused by the COVID-19 pandemic in India and across the globe from mid-March 2020 has created negative impact on prices and production and thereof on the Yarn demand. Cotton yarn spinning sector is completely dependent on production and prices of cotton. Over the past few years, not only production of cotton decreased in India, but also its prices have increased. Cotton production in India has reduced from 398 lakh bales in 2013-2014 to 357 lakh bales in 2019-2020. Prices of raw cotton increased by over 10% during the same period. This has put considerable burden on the spinning industry. Price increase in cotton yarn has not been sufficient to match the increasing
cost of raw materials and highly fluctuating cotton prices.
India’s domestic consumption of cotton yarn is well below its production and its exports are also declining (from 1,313.43 million kg in 2013-14 to 959.79 million kg 2019-20 at a CAGR of about (-) 3%). Both low domestic consumption and decline in exports are leading to surplus production of cotton yarn in the country, which is harming the spinning industry.
Value-wise, in 2019-2020 the cotton yarn exports declined by 29.4 per cent to US$2,760.51 from US$3,895.52 in 2018-2019. Bangladesh, China and Egypt remained the top three exporting countries for India. India shipped cotton yarn worth US$590.57 million to Bangladesh in 2019-2020 (-20.03 per cent); US$590.57 million (down 53.92 per cent) to China and US$181.79 million (-1.11%) to Egypt. The share of Vietnam in China’s total imports of cotton yarn has increased from 7.61% in 2009 to 36.66% in 2018, while that of India has increased from 7.75% to 21.74% during the same period. India also faces duty challenges in export markets vis-à-vis competing countries.
Pakistan and Bangladesh levy higher rates of duty on Indian yarn, while they enjoy duty free or concessional duty access in India. India is lagging in cotton exports to major markets due to a duty disadvantage vis-a-vis Bangladesh, Vietnam and Pakistan. Countries like Bangladesh and Vietnam enjoy duty-free access in world’s largest cotton yarn markets such as China.
The global cotton yarn market decreased by -2.8% to $77.20 B in 2019, after the prominent growth recorded in 2018 when the market value increased by 18% year-to-year. In 2019, approx. 4.5M tonnes of cotton yarn were imported worldwide, which is down by -3.1% compared with the year before. The most prominent rate of growth was recorded in 2015 with an increase of 8.6% year-to-year. As a result, imports attained a peak of 4.8M tonnes. In value terms, cotton yarn imports dropped to $13.7B in 2019.
Looking at the increase in recent demand for yarn in the domestic market, a lot of small spinners who had closed during lockdown period have restarted their mills from October 2020. National Textile Corporation (NTC) have announced that they are restarting around 40% of their spindle capacity which has been idle since the lockdown. The present situation is only a temporary phenomenon and market forces will ensure that the demand-supply balance is restored in due course. Southern India Mills Association (SIMA) have sent an advisory to all Member Mills to ensure uninterrupted yarn supply to the knitting and weaving sectors and avoid undue volatility in prices.