Article - Date: 18-10-2012
The Aftereffects of the Indian Cotton Export Ban: Part Three
Jitender Kumar, Vice President of cotton procurement at Alok Industries Limited, in Gujarat, India, explains the impact last year’s export ban had on textile mill owners.
Author’s note: With the announcement of cotton export ban on March 5, 2012, India was considered a capricious partner in the global cotton market. "The decision to ban exports took into account the trend of domestic consumption and depletion of domestic availability," the government said in a statement.
The topic of India’s cotton export ban was among the most-discussed issues in 2012 among the cotton fraternity. Everyone started analyzing the news as “China’s Loss” or “United States’ gain.” Post-ban, the world has only heard about the plight of International traders. But the suffering has been uniform, including within India.
We have made an attempt to highlight the views of all the major segments of Indian textile trade: the cotton farmer (producer), the ginner (processor) and the textile mill (consumer).Each view will be featured in a Cotton International newsletter (Oct. 4, 11, and 18).
Impact on the Textile Mill Owner
India is second-largest producer of textiles and garments in the world, trailing only China. The textile sector is second-largest employer in India after agriculture and offers direct employment to 35 million people. It constitutes about 12% of India’s exports, contributes about 14% to industrial production, and accounts for about 4% of the country’s GDP.
The Indian textile industry faces many challenges: a volatile cotton market and foreign exchange, heavy power cuts, high tariffs, a shortage of labor, unpredictable government policies, and difficulty accessing credit, among other things.
On behalf of Cotton International, Manish Daga (“Cotton Guru”) sat down with Jitender Kumar, vice president of cotton procurement at Alok Industries Limited, in Gujarat , India, to get a better understanding of the impact last year’s export ban had on textile mill owners.
Alok Industries Limited
A textile conglomerate, Alok Industries Limited caters to the needs of the global textile industry. It offers modern, state-of-the-art facilities for spinning, weaving, knitting, processing, embroidery, garmenting, home textiles and texturizing, making the company a total solutions provider.
Alok is focused on operating in a globalized environment. Its product mix and vertical integration of operations have helped the company acquire a leading position in the constantly growing clothing and home textile market. Established in 1986, Alok Industries is amongst the fastest-growing vertically integrated textiles solutions providers in India.
The company also has a strong presence in polyester textured yarn and has an international customer base of retailers, importers and brands. In less than two decades, Alok has grown into a diversified manufacturer of home textiles, apparel fabrics, garments and polyester yarns that sells directly to manufacturers, exporters, importers, retailers and brands the world over.
1. What was the impact that the export ban had on your business? Please list both positive and negative impacts, if any.
As a spinner, the export ban on raw cotton was perceived as a positive step in the backdrop of dwindling domestic supplies and tight balance sheet. For a raw cotton consumer like India (second in the world after China) -- which has massive investments in textiles, huge employment, various small- to medium-sized and highly vulnerable textile enterprises -- an export ban is always welcome, as Indian textile industry still remains predominantly cotton-based. A ban on exports ensures adequate availability of raw material (cotton) to the domestic industry and places it on a strong footing, thus reducing the uncertainty in supplies and prices that the export of raw cotton thrusts upon it. As a textile company, we really do not see any negative impact of a ban on the industry except that the lack of adequate prices to the farmers might reduce plantings in subsequent seasons and overall domestic production. However, with a robust and highly remunerative minimum support price (MSP) administered by the Indian government, cotton growers today are fairly compensated.
2. How would things have been different for your business if the ban had never been implemented?
Any business has ample chances of flourishing on the back of an assured supply of raw material and price stability. For a domestic textile company, free raw cotton exports from the country not only creates uncertainty on the supply front but also adds to the already highly volatile cotton market. Since raw cotton production estimates are never accurate initially but develop gradually, any uncertainty in estimation of production -- coupled with lack of adequate data at the export front -- adds fuel to fire and price escalation. For a textile business, since a ban on raw cotton exports is considered favorable, our business would have gained from having a robust balance sheet and moderate or stable prices (to which the freeing of exports and then a ban contributed). The high prices before the ban, and a depletion in value of inventories as a result of the decline in prices after the ban, resulted in chaotic situations and an unfavorable business climate.
3. Regardless of whether it helped your business or hurt it, what do you think the export ban did to India’s reputation as a reliable trading partner in the international community?
India has fast emerged as a major exporter of raw cotton in the world and is gradually inching towards being a principal and reliable exporter of raw cotton to the world market. Any ban adds to the uncertainty of supplies and hence the prices for the consumers of raw cotton in the world. In light of this, the export ban did dent India’s reputation in the world market ... but all trading relationships in cotton are predominantly transaction-based, and a country’s self-interest must remain paramount. There are ample examples of other commodities (such as wheat) in which individual governments have put suitable bans on exports to save the domestic industry, and this should be seen as normal and logical.
4. Do you foresee the government continuing to implement policies that affect free trade in the near future (for example, another export ban next season, removing or instituting import/export tariffs, etc.)?
Yes, we foresee similar measures being implemented by the government, as and when required, to save the domestic industry.
5. Did you export cotton this year? What are the challenges that you faced while executing the quota in hand?
Yes, we exported raw cotton to different countries and found it really challenging in the backdrop of uncertain policies. But then, all of these factors are considered in due course; customers are made aware of the uncertain domestic policies and the applicable force majeure, and then business is conducted.
6. Any other comments?
In my opinion, there has to be a restricted and carefully regulated export of raw cotton, and free export of value-added items like cotton yarn and textiles. The basic premise for this argument is that we need to look at the tremendous investments and the fragile nature and vulnerability of our textile industry, which is comprised of unorganized sectors like handloom and organized ones like textiles. But since cotton and textiles are highly volatile items, they need to be carefully monitored so that the majority of cotton is consumed internally, while value-added items are exported for foreign exchange. We must conserve the investments and employment in cotton and textile sector.
COTTON GURU’s comments:
A public-private partnership is strongly recommended, with a professional and collective effort to complete the supply chain. The benefits of such partnerships must be made clear to the concerned parties. Scientific farm advisory services are a must. A better system of reliable statistical data and a common, potent government policy that caters to all sectors in the textile industry are the needs of the hour.