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Cotton Conundrum: Hand-Wringing Turns to Action in India

Seething over yarn and cotton’s increasing costs, Indian garment manufacturers came together last week in hopes of spurring the central government into action.

Factories in Tirupur, a knitwear export hub in the southern state of Tamil Nadu, shut down for two days last week to bring attention to the cotton crisis instead of the four-day shutdown they originally planned.

“We were only harming ourselves,” Raja M Shanmugham, Tirupur Exporters Association president, told Sourcing Journal. Losses from the 48-hour stoppage topped 3.5 billion rupees ($45 million).

“The strike was a cry for help, even though it meant a major loss of business for manufacturers who are in the midst of production schedules. Closing down doesn’t help because we are all doing seasonal products, we can’t get trapped by our own actions,” one local manufacturer told Sourcing Journal.

Shanmugham has been vocal about the situation in what is considered one of India’s largest export zones, where more more than 3,000 factories crank out garments for cross-border markets. Along with other associations, he laid out several possible solutions for the union minister. Among these, he proposed a cotton export ban to help regulate prices.

“We requested removing cotton from the commodity list so that it can be removed from the Multi Commodity Exchange (MCX),” he said, referring to the electronic trading platform based in Mumbai, where cotton contracts started trading in 2005. “This gives an opportunity for derivative trades which fleece out money from cotton.”

This approach would share the pain across the supply chain, Shanmugham pointed out.

“The damage is done across the value chain in a phased manner with this. Cotton stocks are sucked out by market traders, played out as an on-paper purchase, kept as a supporting document to raise the price, and realized by traders on the ground,” he said. “The victims are the hardworking people on the ground, the farmers and the small and medium manufacturers. It is a well-hatched game, making for artificial demand.”

Responding to the situation, Piyush Goyal, union minister for industry and commerce, met with stakeholders from the industry on Tuesday last week, to determine how to aid the industry.

Other ideas for a quick solution included greater transparency of yarn and cotton stocks from spinning mills, adjusting cotton import duty waivers until September, increasing spinning mills’ cash credit limit from three months to eight, and authorizing the Cotton Corporation of India (CCI) to play the role of watchdog.

“We have requested that CCI needs to be able to hand hold the industry and cotton, and be able to keep 100 lakh bales that could be released to users only. This is being done by China,” Shanmugham said.

India is the world’s largest cotton producer, contributing 22 percent of the global fiber.

The matter has been getting support from the local government as well. Earlier this week, Tamil Nadu chief minister M.K. Stalin wrote to prime minister Narendra Modi about the risks of business unit closure, asking for urgent intervention and top-level government aid. Withdrawing cotton import duties has failed to improve the situation, with cotton and yarn prices continuing to rise.

“This precarious situation has widespread ramifications for the textile industry in Tamil Nadu. Many spinning, weaving and garment units face the danger of closure due to unsustainable demands on their working capital and the price mismatch between the agreed price of supply to the buyer vis-a-vis the cost of production,” Stalin wrote.

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