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India Actually Ends Cotton Ban but Plans Fortnightly Review

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India lifted its cotton ban today, allowing new export contracts to be signed for the 2011-2012 season. The announcement came from Trade Minister Anand Sharma, and followed calls for a meeting on the subject of agricultural exports by the Prime Minister yesterday. The meeting has been postponed.

The ban was announced on March 5 by the Directorate General of Foreign Trade, but has been gradually rolled back in response to protests from the Ministry of Agriculture. Minister Sharma said that new export certificates would be allowed and the ban will be reviewed on a fortnightly basis.

India is the world’s second largest producer and exporter of cotton. The ban was raised in response to record overseas sales and fears that excessive exports would lead to cotton shortages for domestic mills. China, the largest consumer of Indian cotton, was incensed by the ban and promptly called for its removal. Indian farmers also reacted negatively, as the ban was expected to depress domestic prices. India’s millers do not require enough cotton to consume all of India’s domestic production.

The ban was subject to intense international and domestic political scrutiny, with the Prime Minister forced to moderate the developing conflict between the Foreign Trade ministry and the Ministry of Agriculture.

When it became apparent that India’s cotton production was due to exceed estimates by as much as 1.1 million bales, the continuation of the ban became economically and politically untenable. If prices fall below a certain point within the domestic market, the Indian government is required by law to maintain a price floor for farmers, which would have meant massive cotton purchases in the 2011-2012 season.

Because export certificates are sold in advance, the end of the ban will not lead to a glut of cotton on the market.

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