New Delhi: Cotton prices, which have surged significantly in the domestic market, are unlikely to ease even after the government scrapped import duty and withdrew export incentives, a latest report said.
“Scrapping of import duty on cotton may not bring down prices as a large portion of the domestic consumption is in the short- to medium-staple variety in which India is self-sufficient, cost competitive and has an exportable surplus,” leading rating agency Crisil said.
Currently imports are restricted to extra-long staple (ELS) variety of cotton, which account for a mere 5% of consumption, it said.
Despite a bumper crop, cotton prices at home have surged by around 25% in 2007-08, in line with global prices.
According to official data, the country’s cotton production rose to 25.81 million bales in 2007-08 from 22.63 million bales in the last year.
In order to boost domestic supply and arrest price rise, the government on 9 July removed 14% of import duty and withdrew 1% export incentive for raw cotton.
The report highlighted that the lowering of import duty would, however, lead to the softening of prices of the ELS variety, which India imports primarily from African countries and the US. This would benefit spinners producing finer count of yarn.
Further, raw cotton exports are expected to increase despite the withdrawal of export incentives as global cotton output is expected to decline in 2008-09, and there is possibility of a global shortage, it added.
The International Cotton Advisory Committee has estimated a decline in global production in 2008-09, primarily led by a sharp fall in US cotton output on account of shifting acreage towards corn.
Amid rising demand from China, “Exports to China will continue to increase, which will keep cotton prices firm and put pressure on the margins of spinning companies,” the report said.
China’s consumption is projected to surpass its production and it will need to rely on imports to meet the shortfall. India’s cotton output, on the other hand, is likely to rise by around 5%, leaving India with an exportable surplus, it added.