Challenges for the Indian textile and apparel industry can increase in coming days as Indian cotton prices are way above the Government-set minimum support price (MSP) levels in 2021-22 cotton year (October-September).

As per media reports, strong rebound in post-COVID-19 demand and bullish sentiments due to tight supplies are expected to keep the price high.

There have also been few more developments that are indicating the future hike in cotton prices.

As the second picking of raw cotton crop is set to gain momentum in Punjab, rates of the cotton have reached an all-time high of Rs. 7,715 per quintal. This price is around 23 per cent higher than the MSP. Punjab is one of the leading cotton producing states in India.

At international level also, as reported by The Wall Street Journal, cotton prices have surged to highest level in a decade.

Cotton Association of India (CAI), the apex trade body of cotton, believes that along with cutting India’s cotton exports, high cotton prices will reduce the Central Government’s procurement budget for cotton to a miniscule amount from the Rs. 55,000 crore spent collectively on cotton procurement during the previous two cotton seasons, said trade and industry veterans at a recent webinar.

“During the 2019-20 and 2020-21 seasons, Cotton Corporation of India (CCI) had spent a total of Rs. 55,000 crore and procured 2 core and 7 lakh bales. As the cotton prices are currently ruling about 30 per cent to 40 per cent above the MSP, our intervention may not be required during 2021-22,” said Pradeep Agarwal, Chairman, CCI. The CCI is a public sector undertaking of Ministry of Textiles.

The cotton production in 2021-22 is expected to be between 355 and 360 lakh bales, which is almost like last year’s production of 355 lakh bales despite reduction in area sown under cotton from 133 lakh hectare in the previous year to 125 lakh hectares in the current year.

Domestic demand for cotton from the spinning mills is strong due to good margins and robust export demand. Despite high cotton prices, mills are expected to buy aggressively as the demand and consumption is expected to be stronger than the supply situation.

According to the most recent outlook from the United States Department of Agriculture (USDA) consumption of cotton in China in the current marketing year is expected to be 41 million bales, the equivalent of roughly 8.9 million metric tonnes. That is up 24 per cent over the past two marketing years, driven in part by a post-pandemic surge in demand for consumer goods.