Inaugural Speech By Shri A. B Joshi, IAS, Textile Commissioner (Mumbai), Govt of India Friends, I am delighted to deliver the Inaugural Speech in this august gathering representing the cotton trade and industry. As you are aware, Cotton, the white gold, enjoys a predominant position amongst all cash crops in India. Cotton is an important raw material for the Indian textile industry, constituting about 65% of its requirements. The Indian textile industry occupies a significant place in the country s economy with over 1500 mills, 4 million handlooms, 1.7 million power looms and thousands of garment, hosiery and processing units, providing employment directly or indirectly to around 35 million people. 1.1 India is the world s second largest producer of textiles and garments after China. It is the world s second largest producer of cotton after China and the USA and the second largest cotton consumer after China. The textile and garment industry in India is one of the oldest manufacturing sectors in the country and is currently it s largest. The textile and garment industry fulfils a pivotal role in Indian economy. It is a major foreign exchange earner and, after agriculture, it is the largest employer with a total workforce of 35 mn. 1.2 India's cotton-processing sector gradually declined during British expansion in India and the establishment of colonial rule during the late eighteenth and early nineteenth centuries. This was largely due to the East India Company's de-industrialization of India, which forced the closing of cotton processing and manufacturing workshops in India, to ensure that Indian markets supplied only raw materials and were obliged to purchase manufactured textiles from Britain. 1.3 Cotton production has been growing in India over past years in terms of both acreage and production. In terms of acreage India is the biggest cotton grower in the world while in terms of production India ranks third in world. Cotton productivity in India has been low, however in
recent years productivity has improved after introduction of BT cotton. Still it is far below than world average productivity. Ever since the government of India authorized the commercialization of Bt cotton in 2002, cotton production has soared. From 2002 to 2008, production has doubled from 15 million bales to 31 million bales. 1.4 Gujarat is the largest producer of cotton in India followed by Maharashtra, Andhra Pradesh, Punjab and Haryana. While acreage is highest in Maharashtra followed by Gujarat and Andhra Pradesh. Productivity keeps on varying based on the type of seed used, onset of monsoon, distribution of rainfall and incidence of diseases and pest attack including crop management practices. By far Gujarat has been showing consistent increase in productivity mainly on account of usage of Bt cotton. 1.5 Indian cotton sector from production point of view has several deficiencies. These deficiencies are, poor quality of seeds and pesticides that is used in cultivation process, low productivity (yield per hectare), high cost of cultivation especially due to pesticides, multiplicity of cotton varieties leading to rampant mixing, poor fibre attributes of most varieties, rapid deterioration of fibre quality of hybrids with successive pickings, lack of transfer of agricultural technologies to the farmers fields, poor infrastructure at market yards, high trash content in cotton (4%-7%) despite being handpicked from the farm and wide range of contaminants in cotton numbering over 25 types. 1.6 In order to find solution to many of the problems in cotton production and processing sectors and to place the cotton economy on a sound footing, the Technology Mission on Cotton (TMC) was launched in February 2000. The scheme was to be phased out by the end of 10 Five Year Plan i.e up to 31.3.2007. However, the scheme Mini Mission III & IV of TMC has further been extended in the XI Plan for two years i.e. up to 31.3.2009 to accomplish target and completion of the projects. 1.7 Cotton production policies in India historically have been oriented towards promoting and supporting domestic textile industry. India opened up its economy in early 1990s as part of its liberalization policy. Government of India as part of its economic policy encouraged small scale
handloom units. Increase in capacity for textile manufacturing increased the demand for cotton. Resultantly India began import of cotton from other countries. Other reason for import was the quality aspect. Imported cotton had better quality than Indian cotton. Entry of China in WTO in year 2005 and expiration of Multi Fibre agreement in year 2004 led to massive rise in cotton demand from Chinese textile manufactures. Rise in domestic cotton production helped India to meet its domestic requirement as well as export the surplus cotton into international market. 1.8 International trade in textiles and clothing has long been regulated by restrictive trading systems. Cotton international trade is regulated by importing nations of textiles and clothes from as early as 1930 s. In 1930 s quantitative restriction was imposed by developed countries against then increasingly competitive Japanese textile industries. In early 1960s, the short term cotton textile agreement came into effect, followed by a more comprehensive agreement known as long term arrangement on cotton textiles in 1962. Long term arrangement evolved into the first Multi fibre arrangement in 1974, in which coverage was expanded to non cotton products, especially synthetic fibre products. 1.9 Between 1974 and 1994 textile and clothing quotas were negotiated and controlled by the rules and regulations in the Multi-fibre Arrangement (MFA) created to protect the textile production in the developed countries. During the Uruguay Round negotiations in the 1990s, it was decided that the MFA should resolve gradually. On January 1st 1995, the World Trade Organization s (WTO) Agreement on Textiles and Clothing (ATC) phased out the MFA. The phase-out of MFA has made impact on trade flow and dynamics in apparels worldwide. 1.10 The Multi-Fiber Arrangement (MFA), provided a framework for bilateral dialogue under which developed countries abided by a quota on the export of yarn, textiles and apparel from the developing countries. The MFA allowed for discrimination not only against specific fibers and products, but also among exporting countries. The quotas for apparel exports were announced for three-year periods and were subject to specific criteria. The MFA was established for the period 1974-1994. Gradually, many
importing countries (Sweden, Switzerland, and Australia among them) left the MFA. By 1994, the MFA included only four importers (the US, the EU, Canada, and Norway) and some 30 developing exporting countries with a total of 1,300 bilateral quotas on textiles and clothing. 1.11 The MFA system is a departure from two of the most fundamental principles of the multilateral trading system. These are: (i) the ban on quantitative restrictions, and (ii) the prohibition of discrimination between suppliers of textiles and apparels. 1.12 In the Uruguay Round of the General Agreement on Tariffs and Trade (GATT), the Agreement on Textiles and Clothing (ATC) negotiated the phase-out of the MFA over a ten-year period beginning in 1995. The ATC stipulated liberalization to occur in four stages and in two forms: (i.) integration, and (ii.) an acceleration of quota growth. At the end of fourth and the final stage, i.e., by January 1, 2005, all bilateral quotas between developing exporters and developed importers ceased to exist. 1.13 In order to provide income support to the cotton farmers, the Government announces minimum support price for seed cotton every year. MSP gives assurance to the farmers that if cotton price fell below MSP, Government agencies will purchase from the farmer at MSP. 1.14 The Government announces minimum support prices for cotton every year and the Cotton Corporation of India (CCI), a government-owned organization, sets the minimum support prices for each cotton variety. MSP fixed by the Government is Rs. 2850-3000 per quintal for the Fair Average Quality (FAQ) grade, based on recommendations from the Commission for Agricultural Costs and Prices (CACP). 1.15 Some of the industry representatives may feel that the hike in MSP for cotton this year will distort the physical trade, as the prices in physical market are much lower than the MSP. The reasons are obvious sluggish demand in domestic trade thanks to overall slow down and lower export orders leading to downfall in prices. But, as a part of the responsible trade and industry, we must always look at the cotton farmers as our partners. If the inflation rate goes up, cost of agri input goes up, cost of living for the farmers families also go up and therefore, they must be
reasonably compensated by way of hike in MSP. If the farming is protected and supported, trade and industry will flourish. If farmers get hurt due to market vagaries or due to market slow down, it will have devastating impact. Industry may bounce back as a result of general recovery in economy, but farmers are not there to support and produce, trade and industry will not be able to recover from recession. Therefore, we must protect our farmers at all costs by providing them remunerative prices. 1.16 This year the Government of India has appointed CCI as well as NAFED as the nodal agency for procurement of cotton. Both the agencies are working in full fledged manner for carrying out such MSP operation. In Maharashtra, NAFED has already one huge procurement through Maharashtra State Cotton Federation. However, I feel that NAFED should take up such operations across the country, including Haryana, MP, Rajasthan, Orissa, etc. For this purpose, NAFED should take help of the State Federations and farmers co operatives working in such states. But, if the Federations or farmers cooperatives are not coming forward, it should also take help of private agencies. The Government has already done this experiment in the case of wheat and rice procurement at MSP. The Government appointed private agencies for carrying out MSP procurement of behalf of FCI in different states, such as Maharashtra, UP, Orissa, etc. and such operations were very much successful. In the same manner, NAFED should appoint private agencies for carrying out cotton procurement on its behalf on similar terms, as applicable in case of State Federations. 1.17 I also congratulate NAFED for coming out with the novel idea of selling ginned cotton through electronic spot market set up by National Spot Exchange. This is an extra ordinary initiative. This will bring transparency in the cotton market. The entire country will know at what price NAFED is seller of cotton at a give point of time. Since National Spot Exchange is an open platform, all the exporters and spinning mills will have equal opportunity to buy through this platform. This will help NAFED to operate professionally and most efficiently. This will also help NAFED to realize the most optimal price, as buyers will submit competitive bids on electronic platform. This will facilitate reduction in loss relating to MSP procurement. I
wish this novel initiative an outstanding success. I also wish National Spot Exchange a great success in its initiative to reform the physical market of commodities, not only in cotton but in all commodities which are being traded and delivered on its platform. National Spot Exchange will really create a big impact in reforming the physical market of agricultural commodities, by improving farmers realization, reducing cost of intermediation and thereby keeping the consumer paid price under check. I wish a great success to NAFED and National Spot Exchange in this great initiative.