Import duty, surging cotton prices big concerns for textile value chain: SIMA

The recent hike in price by Rs3,800 per candy (355 kgs) of cotton within 15 days by Cotton Corporation of India (CCI) and 10 per cent import duty on cotton has enabled the trade increase prices abnormally and such hikes are a severe blow to the entire cotton textile value chain, Southern India Mills' Association (SIMA) said on Monday.

Cotton prices have been increasing rapidly since January 2021 and skyrocketed this month, even as CCI increased the price from Rs 51,000 to Rs 54,800 per candy since the start of July, which has helped fuelling the market, SIMA Chairman Ashwin Chandran said in a release here.

The market price of Gujarat based Sankar-6 cotton that was Rs 43,300 in January last has increased to Rs 56,600 now, an increase of over 30 per cent, Ashwin said.

The steep increase in cotton prices will not only affect the industry and squeeze margins, but lead to higher prices in apparel and textile goods for domestic consumers, who are already burdened by the ill-effects of the Covid-19 pandemic, he pointed out. Stating that there was no parity between current cotton prices and yarn prices, which in turn would force spinning mills to increase yarn prices in the coming period to avoid incurring losses, he said CCI had procured over 25 per cent of the Indian cotton crop under Minimum Support Price (MSP) operations, the cost of which works out to Rs 43,000 per candy.

The current selling price is abnormally high. Even if the carrying costs and reasonable profit margins are taken into account,CCI could have maintained prices at a reasonable level of around Rs 48,000 per candy to maintain stability, he said.

"Taking advantage of the 10 per cent import duty on cotton, the trade has encouraged price speculation and domestic prices in certain varieties such as ELS (Extra Long Staple) cotton has already exceeded the international price making our industry uncompetitive he said.

Chandran said that because the country is poised to record a very high closing stock figure of 110-120 lakh bales, such a steep increase in cotton prices was never anticipated.

The speculative market has encouraged the ginners and trade to mix inferior cotton and waste with virgin cotton, resulting in high trash content, short fibre content and high contamination, which affect the performance MSME spinning mills, power looms and handlooms, he said.

Expressing grave concern over the issue, he urged the government to withdraw the 10 per cent import duty immediately to change the market sentiments and avoid further damage to the cotton textile value chain.

Since the industry imports only around 11 to 12 lakh annually (less than 4 per cent of annual consumption) that too cotton varieties not grown in India, the import duty does not help Indian cotton farmers and is a big hindrance to the Indian Textile and Clothing Industry, he added.