By Priyanka Dey

Edited by Michelle Cherian, Associate Editor, The Indian Economist

A rather optimistic observer would counter that due to closure of many firms it is eventually easier for those who sustained the blow to evolve as market powers. The shutdown of producers is due to lack of innovation and because of technological redundancies. Manufacturers who can really think out of the box at these junctures will be able to transform into market leaders. India has a cotton surplus while many textile producing countries have lack of cotton like Vietnam, Bangladesh, Indonesia, Thailandetc., thus, eliminating some big giants from the competition. This provides an easy winning route for the surplus producing Indian cotton industry to capture trade.

Also, deficits in major producers like China and Pakistan can make Indian cotton stand out in the international market. One thing that is very unique about the cotton demand is that it is a very volatile market and demand fluctuates very easily as the competitors are substitutable. However, production is time consuming and slow in procedure. Thus a gap always exists in the market.

It depends on the forecasting ability of the producers that helps decide who gets to capture the major market share. Indian cotton industry has low productivity currently which means that there are many ways to improve. It also gives enough room for positive growth models. The inefficient market does possess enough space for renovation and at times it is easier to be developed in comparison to an industry which has lived its age. The garment industry has been growing in a rapid speed and cotton is one of the most favoured textiles, due its diversity and durability. Hence, not only traditional users but many contemporary designers are using cotton. It has changed the sense of fashion in the cotton industry and is a key reason behind the increasing demand for cotton.

In most of the developing countries cotton production is still done using primitive mechanisms. The agriculture of cotton depends on the monsoon. It requires a lot of water for harvesting which is only possible with a good monsoon. In recent times, the monsoon has had a very bad shape and this brutally impacts the cotton production. Indian government had also provided infant industry coverage to the cotton industry but after multilateralism came into the scenario, the Government was forced to eradicate those favours. A sudden change of government policy comes as a hard blow on the producers. Due to low exchange rates of INR, Indian cotton industry has been facing price issues. It is very hard for them to have a good portion of profit whereas stronger currencies are making profits even at lower prices. However, all is not bad- revolutionary technologies of U.S.A. and China have helped the industry acquire good harvest even in bad weather conditions.

Policy prescriptions for India’s Cotton Industry

(i)            India, the world’s second largest producer and exporter of cotton is seeing a growing appetite from its second largest customer, Bangladesh and third largest cotton importer, Pakistan, as well as some other key clothing producers like Vietnam and Turkey.

The weaker rupee and a good harvest have been the key in boosting exports to destinations other than China who purposely devaluates its own currency for growth. The cotton association of India (CAI) has estimated 2013-2014 crop at 380.5 lakh bales which is an all-time high. Thus with the growing production of cotton, if India decides not to offload its reserve stock onto the world market then price is expected to stay uniform and not fall.

(ii)          Improving the price transmission mechanism is a crucial determinant of the ability of developing countries like India to increase supply of cotton in response to any removal of cotton subsidies. This is especially relevant to sectors which are still dominated by state control (including West Africa). Strengthening farmer voice in decision-making may help to overcome this constraint.

(iii)         Indian cotton industry needs to develop an efficient and effective quality control system along with ensuring supply reliability. India’s competitiveness is surely diminishing because of its threatening substitute, Polyester. Thus, to avoid certain issues of WTO export quality control measures and to gain future momentum in the global cotton market, this issue needs to be curbed as soon as possible.

(iv)          Cotton cultivation in India needs to switch from input based to knowledge based growth and the dissemination of knowledge plays a vital role for this paradigm shift. Effort to enhance the productivity of the production remains incomplete without proper innovations in transfer of improved production technology.

(v)           India, being an extremely supportive nation to the cotton producing LDCs (least developed countries), for instance the C-4 countries, has established herself as an exporting superpower in this industry. Thus the product differentiation mechanism within the cotton market will help the country favor and protect market share from small changes in prices/competitiveness. Besides, the regulation of the fertilizer, Nitrogen and diversification of cropping systems actually reduced the usage of pesticides by 30 -40% which will lead to more profitability and lesser pollution emission, matching up to the WTO standards.

Priyanka is passionate for love , economics , dance, fashion and living life . She builds her life in hope of inspirations. For her bringing change is the cause of our existence and every step that one takes changes assumptions for the superstructure . It gives her pleasure in deconstructing anything and everything . Accordung to her we all know what we actually want and eventually achieve that and the rest that comes in the path is just knowledge creation.


Posted by The Indian Economist | For the Curious Mind