India’s Cotton Yarn Export Cap Solicits Mixed Reaction

Some claim the timing of the limit could be problematic.

An employee working at a cotton factory in Mauayama, India.

NEW DELHI — India’s imposition of a limit on its exports of cotton yarn has angered the nation’s yarn spinners and provoked a mixed response from textile and apparel manufacturers.

This story first appeared in the December 7, 2010 issue of WWD.  Subscribe Today.

India will limit shipments of cotton yarn to 720,000 metric tons in the year from Oct. 1 to strengthen domestic supplies, the textiles minister said last week.

Fabric and apparel manufacturers in India — the world’s second-biggest producer and exporter of raw cotton — have long lobbied the government for a ban on all exports of cotton, arguing that high domestic prices are damaging an industry that employs 80 million people. On Nov. 19, apparel factories across India closed to urge the government to impose an export ban on cotton yarn.

But on Thursday, two days after the government set the quotas, officials from the Confederation of Indian Industry, or CITI, said the timing of the new arrangement would cause problems. Since a large number of registration certificates that allow the export of yarn have already been issued, exporters will hurry to get the yarn out of the country in the next 45 days, the period during which the certificates are valid, CITI said.

“Mills will be forced to divert supplies from the domestic market to export markets during this period, reducing the availability for domestic consumers of yarn,” said Shishir Jaipuria, CITI’s chairman.

He added that the cap would push up international prices of cotton yarn and that other big cotton yarn exporters, including Pakistan, Turkey and Indonesia, would be the biggest beneficiaries. But Premal Udani, chairman of the All India Export Promotion Council, or AEPC, said he welcomed the export cap.

“I don’t see what CITI’s problem is,” he said. “When we have an economy that is growing at close to 9 percent, there is a surging domestic demand, as well [as international]. We would have been pleased if the cap was set even lower, but this is good news.”

India, on Sept. 4, said it would limit raw cotton exports to 5.5 million bales in the year beginning Oct. 1 in a bid to meet domestic demand. The textiles ministry halted registration of new export contracts on Oct. 11 when applications reached the specified limit. The agriculture minister, Sharad Pawar, has said the limit may be reviewed this month.

Around the same time, however, it was revealed that domestic output had jumped to a record 37.7 million bales this year, compared with 26.6 million bales the year before, which could cool prices.

Meanwhile, different sectors of Indian industry, from cotton growers to apparel makers, may unite to ask the government to set export limits on a monthly basis, replacing the ad-hoc decision making currently in place. This would allow a more measured assessment of factors from production to consumption levels.

In Washington on Friday, the American Apparel & Footwear Association sent letters to Obama administration officials urging action against India’s cotton export restrictions, which it said violated global trade rules. The AAFA will press the administration to immediately request consultations with India under the World Trade Organization, Nate Herman, vice president of international trade, said in an interview. If India refuses consultations or the talks do not lead to a satisfactory resolution, Herman said the AAFA will urge the U.S. to formally launch a WTO case against India.