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Tuesday, 06 March 2012 00:00
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Cotton exports banned to keep industry happy

For a government that claims to be pro-farmer, its policies are distinctly anti-farmer. If it wasn’t bad enough that the Essential Commodities Act and the Agricultural Produce Market Committee Act prevent farmers from getting a fair price for their produce (one restricts movement of produce and the other ensures commission agents eat up a large share of farm revenues), the government on Monday banned cotton exports once again. Cotton production, that of Bt cotton essentially, is what has driven farm growth over the last decade—this is what ensured Gujarat agricultural growth has averaged 10% for the last decade—and this, in turn, was driven by higher prices, especially in the export market. India is today the world’s second-largest exporter. Around 10% of agricultural GDP today comes from exports, so any policy that affects this will hit overall agricultural growth. It is obvious, no sustained export growth can take place if everyone knows that the minute local prices start rising, exports will be banned—when exports were banned in March last year, it was because cotton prices had started rising.

Apart from what the ban will do to cotton prices—and possibly to farmer suicides since farmers were expecting substantially higher cotton prices—it is not immediately clear how much this will help the textiles industry on whose behest exports have supposedly been banned. That India’s textiles industry has not been able to make as much of the post-MFA boom is testimony to the fact that it labours under all manner of restrictions, from SSI reservations to restrictive labour laws and uncertain government policy—last year, yarn exports were banned to ensure lower prices for the local garment industry but, with supplies falling, this even hit garment exports! Spinning is the only sector where 90% of output is in the organised sector—there are all manner of reservations in other sectors—and in this sector, India is the second-largest exporter in the world. Which is why the Confederation of Indian Textile Industry (CITI) even asked the government not to interfere in the cotton market, arguing that industry does well in sectors where the government role is minimal. Indeed, while making this point, CITI pointed out that the industry didn’t even have enough money to buy all cotton produced as the mills were reeling under a host of other problems including large power cuts. It added that government intervention would hurt long-term supplies of cotton as well. So this is a move which, while benefiting no section, will harm everyone.



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