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Cotton prices drop as India allows exports, registrations

New York: There has been an unseemly and very public spat between the commerce and agriculture ministries over a surprise March decision to ban Indian cotton exports. India finally decided on Monday to ease a nearly two-month restriction on cotton export permits, removing all barriers to shipments. Cotton prices fell by 2 percent on the back of the news as global commodity traders rejoiced that India had finally brought clarity to a muddled situation.

"After a comprehensive review it was decided that suspension of new registrations for exports be revoked and exports be permitted," said a government statement released on Monday.

The decision was taken after agriculture minister Sharad Pawar, commerce and textiles minister Anand Sharma and C Rangarajan, chairman of the Prime Minister's Economic Advisory Council held an emergency meeting on Monday to discuss the contentious issue.

 Cotton prices drop as India allows exports, registrations

The policy U-turn remedies decision to ban exports, which was taken without consulting stakeholders. AFP

Cotton for July delivery slid 1.83 cents to settle at 89.4 cents a pound on the ICE Futures US Exchange in New York. It was the biggest decline for an active contract since 4 April. Traders now expect India, the world's second-largest cotton producer, to put more supplies into the global marketplace and create more competition for US cotton growers.

Sharma said the export restrictions had been removed because estimates showed there would be a sizeable surplus of the fiber, and "the ministerial panel will review the export situation in two to three weeks."

The uproar for cotton exports grew after India's government-run Cotton Advisory Board raised its 2011-2012 production estimates by nearly 9 percent. India's cotton output in the marketing year ending 30 September is expected to reach a record 34.7 million bales, while domestic consumption is expected to decline by around 6 percent to 25.2 million 170-kilogram bales, according to the Cotton Advisory Board.

"The revised production estimate clearly shows the country could export another two million bales, as demand from textile mills has also dropped, in comparison to earlier expectations," an agriculture ministry official told Business Standard.

Dhiren Seth, president of the Cotton Association of India, applauded the government decision, saying it would be "very beneficial to farmers."

The government on Monday also directed the state-run Cotton Corporation of India to maintain a buffer of one million bales between June and August to be used to supply local textile mills in the event of a shortfall.

The cotton saga started on 5 March with the Directorate General of Foreign Trade (DGFT) banning all cotton exports from India due to pressure from domestic textile and apparel producers, who wanted to ensure adequate supplies of the raw material. International cotton prices rocketed due to the Indian ban butthe markets calmed as soon as Pawar demanded that the ban be revoked, 24 hours after it was announced.

Pawar was forceful in making the case to the prime minister that after the ban on exports, traders were buying cotton from farmers in Gujarat, Maharashtra, Madhya Pradesh and Karnataka for throwaway prices. Local cotton prices tumbled 6 percent within three days of the ban to Rs 33,000 per 356 kilograms for the widely traded Shankar-6 variety. As many as 1,000 ginning mills in Gujarat took part in protests and Gujarat chief minister Narendra Modi and his Maharashtra counterpart tongue-lashed the decision. As a result, the ban was dismantled in stages.

The quick policy U-turn is being read in the domestic and foreign business community as yet another instance of the Indian government's "hasty decision-making process" and reluctance to hold broad consultations with partners before taking important decisions.

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Updated Date: Dec 20, 2014 09:55:07 IST

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