By  on May 25, 2010

NEW DELHI — India lifted a month-long ban on cotton exports on Friday, prompting cheers from Indian farmers and global garment manufacturers who are feeling the effects of a worldwide cotton shortage.

India retained a tight control on its exports of raw cotton, however, by demanding that all exporters must now apply for a license.

India’s ban on raw cotton exports was introduced on April 19 in a bid to cool down domestic cotton prices. Prior to the ban, Indian apparel manufacturers complained that unusually high exports had limited the availability of cotton within India, while pushing up the price.

Friday’s move appears to have been made with an eye on the other end of the market: cotton farmers. Cotton farmers in north India have begun to sow seeds for the new season in recent days and they are likely to plant more if they are free to export. But the government has also come under heavy pressure from politicians, including farm minister Sharad Pawar, and the agricultural lobby, as well as buyers overseas.

“This is great news,” said BJ Kedia, owner of a cotton exports company basedin Mumbai. “The ban was hurting farmers and buyers around the world. Now we expect to see business improve fast.”

But Dhiren Sheth, president of the Indian Cotton Association, said until it became clear how easy it would be for exporters to win a license, or how many licences the government would grant, he was not lauding the news.

“Cotton was once on a free exports list, now it has been shifted to a restricted list,” he said. “We are awaiting further clarification on what exactly this means.”

The introduction of the ban and its repeal, within the space of a month, has highlighted the difficulty India has in balancing the needs of farmers with manufacturers. Since India introduced genetically modified cotton seeds in 2002, it has become the second biggest cotton producer in the world and an increasingly big exporter on which textile-making countries are heavily reliant.

In the first two months of the year, India replaced the U.S. as the biggest exporter of cotton after China bought in a record 265,460 tonnes of Indian-grown cotton, a rise of 1,694 percent from a year earlier.

After the ban, cotton futures in China hit an all-time high, rising by more than seven percent in two weeks. The ban’s reversal will make business easier there, as well as in countries like Bangladesh and Pakistan, where high prices of cotton have recently threatened to close mills.

If prices within India rise too high again, the government is likely to impose another ban on exports. With agriculture growing at a slower rate than industry, the government is keen to encourage textile and apparel manufacturing, which is a relatively easy sector for workers to be retrained.

The need to balance these interests has been made more acute by a global cotton shortage. This month, the U.S. Department of Agriculture said world output would reach 113.9 million bales next year, up from 102.9 million bales in the current marketing year. But world consumption, it said, may rise to 119.1 million bales next season from an estimated 115.9 million.

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