Why Pakistan textile sector faces an uphill task to import Indian cotton, yarn

Hopes of Pakistan importing cotton from India have been raised after New Delhi and Pakistan renewed their agreement to observe a ceasefire along the Line of Control and the international border in Jammu and Kashmir last week.

But there are a few hurdles, especially political ones, for Indian cotton to surmount before it can reach Pakistan, according to traders and industry officials.

Earlier this week, Pakistan’s The Express Tribune , quoting Islamabad Commerce Ministry officials, reported that adviser to Pakistan Prime Minister Imran Khan on Commerce Razak Dawood would decide this week on importing cotton and yarn from India.

The report was on the heels of Dawood telling the media on February 13 that Pakistan had no plans to allow the import of duty-free cotton from India in order to bridge the shortfall in the local market.

Higher prices, lower crop

The statement came after Pakistan withdrew all import duties on cotton on January 2 this year. Earlier, it imposed a 11 per cent import duty.

Signs from Pakistan are ambiguous, particularly after Imran Khan headed a meeting yesterday on surging cotton yarn prices. Dawood tweeted that the Pakistan Prime Minister had “instructed to take necessary measures, including cross-border trade of cotton yarn, to keep the momentum of value-added exports”.

Yesterday’s high-level Pakistan meeting was held after raw cotton ( kapas ) prices increased to an 11-year high in the neighbouring country to Pakistani rupee 12,000 (Indian ₹5,560) per maund (37.32 kg).

Pakistan may resume import of cotton from India: Report

Cotton prices in Pakistan are literally on fire as its production for the current marketing year (August 2020-July 2021) is 24 per cent lower at 60.19 lakh bales (of 170 kg), according to the US Department of Agriculture (USDA).

The US agency estimates Pakistan cotton imports at 60 lakh bales.

Pakistan’s crop is lower as farmers cut cotton planting by 10 per cent, while the crop was hit by a heavy monsoon and severe pest infestation.

Pakistan trade, however, is pegging the crop even lower at 56 lakh bales, the lowest in 30 years.

The drop in Pakistan crop comes at a time when global cotton prices have increased sharply since June last year to 87 cents per pound (₹50,050 per candy of 356 kg) now. Since the beginning of this year, cotton prices have increased by over 11 per cent in the global market.

Cotton yarn prices gain sharply on surging cotton rates, demand

At the same time, prices of Shankar-6 cotton, the benchmark for exports, in India are quoting below ₹47,000 a candy.

Pakistan spinning mills could stand to gain from this as cotton could be transported by trucks across the border or even shipped from one of the western ports.

Besides getting cotton at a competitive price, they could also gain on the freight charges.

MFN status lost

The problem, however, is that after the Pulwama blast in February 2019 in which at least 40 Central Reserve Police Force (CRPF) personnel were killed, trade between Islamabad and New Delhi has come to a halt.

In retaliation to the blast and holding Pakistan responsible for it, the Indian government withdrew the most-favoured-nation status given to Pakistan and imposed 200 per cent Customs duty on imports from there.

Pakistan, on the other hand, has not been allowing imports from India and Dawood’s meeting reiterated this.

“There is no ban on exports to Pakistan from India. A political decision has to be taken. There is no political pressure here on us,” said a government procurement agency official.

Advantage CCI

When contacted, Cotton Corporation of India (CCI) Chairman and Managing Director PK Agarwal told BusinessLine that Pakistan would have to withdraw its curbs on the import of Indian cotton.

“Currently, Pakistan could be willing to buy any cotton but so far, no one has approached from that side,” he said.

The CCI is among the best-placed organisations in the country to supply cotton to Pakistan as, according to traders, it has at least 65 lakh bales in stock with it. The corporation has procured nearly 100 lakh bales this season (October 2020-September 2021) from growers.

India is also well-placed to meet any export demand as it is carrying record cotton stocks from last year. According to the Cotton Association of India (CAI), the carryover stocks are 125 lakh bales.

The Committee on Cotton Production and Consumption (CCPC), a body representing all stakeholders in the textile industry including government officials, has estimated the carryover stocks at 120 lakh bales.

The carryover from the current season has been estimated at 115 lakh bales by CAI and 97.95 lakh bales by CCPC, which means ample cotton is available for exports.

CCI’s Agarwal told BusinessLine last week that cotton exports could top 65 lakh bales this year. Traders, too, are coming around the view after expressing fears over shipping delays, including container availability.

Till the end of February, 37 lakh bales of cotton have been exported from the country.

On top of the record stocks, India’s cotton production has been estimated higher by the Committee on Cotton Production and Consumption (CCPC) at 371 lakh bales (358.50 lakh bales). Cotton Association of India has projected the output at 360 lakh bales, the same as last year.

CAI President Atul Ganatra said that no one from the government or trade had approached for the supply of cotton to Pakistan.

“It is very difficult in the current political situation to export to Pakistan,” he said on the possibility.

“Reports in the media are about Pakistan spinning mills asking their government to import from India since they are now relying on Africa and the US for their raw material,” said Anand Poppat, Rajkot-based trader in raw cotton, yarn and spinning waste.

“There has been no direct enquiry yet from Pakistan,” he said, adding that since Pulwama the political situation has not been conducive for exports.

Yarn imports

Besides cotton, there is also a demand for the import of cotton yarn. This has left the Pakistan textile industry divided.

While cloth and garment manufacturers are demanding that cotton yarn import be allowed to speed up manufacturing, spinning mills there are opposing this since it would be “disastrous to Pakistan’s spinning sector”.

In particular, it has opposed imports of cotton yarn from India, saying it could create a crisis in the spinning industry and lead to the closure of mills there.

But the value-added textile manufacturers have demanded permission to import cotton yarn from India, pointing to how Islamabad has allowed Indian drugs and pharmaceuticals to be imported.

Representatives of the value-added sector have directly told Pakistan Prime Minister’s advisor Dawood that “it is also most crucial to allow the import of cotton yarn from the neighbouring country through the Wagah border as the quality yarn is not available and prices have increased manifolds.”

“Pakistan can easily buy 10-15 lakh bales of cotton from India given the shortage it faces. Trade on both sides will gain but a political decision has to be made,” Poppat said.

Traders and officials concur with the view.