With the South-West monsoon continuing to stay deficient and large parts of the country including agriculturally important areas of Gujarat, Punjab, Karnataka, Uttar Pradesh, Bihar and Maharashtra facing various levels of moisture stress, questions are being raised about the Government’s policy response to imminent decline in harvest size.

Cotton is one such crop that risks adverse policy changes if events of last two years are anything to go by.

For 2012, the planted acreage for cotton, according to the latest report of the Agriculture Ministry’s Weather Watch Group is 111 lakh hectares, slightly lower than 117 lakh hectares a year ago, but up from last five-year average of 106 lakh hectares.

Acreage

But acreage is not the matter of concern. If anything, cotton acreage has been resilient in the face of adverse weather, demonstrating the growers’ confidence about marketability of the crop. It is the size of output and to a letter extent quality that’s a matter of worry.

With Gujarat, Karnataka and Punjab facing moisture stress, there is a real risk of a decline in cotton output.

Although it may be a little too early to put a precise number on the crop size, it is increasingly clear that output will be substantially lower than last year’s. Some estimates suggest the crop could be about 300 lakh bales on the upper side and about 280 lakh bales on the lower side.

Cap on Exports

The big worry is whether the Government will impose restrictions on cotton export. Last two years, the market has seen policymakers succumb to pressure from the domestic mills and clamp controls on raw cotton shipments in the form of export duty, quantitative ceiling, contract registration, shipment period specification and the like.

What purpose and whose purpose these restrictions served is anybody’s guess; but many market participants are now truly concerned about the Indian Government once again interfering with free markets. Near-whimsical policy changes of the last two years have already sullied the country’s image in the international marketplace. We cannot anymore afford to repeat wholly avoidable policy changes and uncertainties.

Stability and predictability of policy including export policy is critical. For 2012-13, given the global demand-supply fundamentals including stocks, world cotton prices are unlikely to see a bull run despite the threat of tightening supplies. New York cotton prices are fundamentally bearish. The global impact will be felt on domestic cotton prices. The world market is not in a position to absorb unlimited quantities of Indian cotton.

Without loss of time, the government must make its policy stand clear. Exports will no doubt help support domestic prices and deliver remunerative returns to growers who have suffered the adverse consequences of bad weather this season. In any case, cotton imports are allowed free for the domestic users.

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