by Apparel Resources
02-August-2018 | 6 mins read
Recently Government announced 28 per cent increase in MSP of cotton for the season (2018-19) Though trade association welcomes this decision and demands for direct transfer of subsidies to the farmers; most of the textile and apparel manufacturers think it is too early to comment anything about its exact impact at various levels. The overall impact of MSP’s hike depends on many things, like the amount of cotton production that will happen around the year, the amount of cotton and cotton yarn export that will take place, the availability of cotton in India, and even the buffer with the government. Some of the apparel exporters are not much worried about the increase in MSP as they believe that any rise in fabric price will be for the entire industry and the industry together will find a way out of this. There are expectations that overall cost of fabric will increase by 10-15 per cent, and it would not have any serious or negative impact on order bookings. It will be considered a routine, and hopefully will not affect in any way. On the other hand, some companies are strongly against the decision and say that the hike will have a negative effect.
Pranav Ghelani, MD, Sumangalam Exports, Mumbai, strongly advocates the adverse effect, though he concedes that the acreage for cotton cultivation will go up and consequently the supply. “China continues to be the largest importer of cotton and this will not allow the prices to stabilise. If the US-China trade war extends to cotton and textiles, American cotton will be levied with punitive tariffs by China. This will also lead to upward pressure on Indian cotton,” Ghelani pointed.
Pranav sees cotton yarn prices going up by around 7 per cent in the new season. “This will further erode the competitiveness of Indian textiles, but at the same time, higher cotton prices will be the ‘new normal’ and buyers around the world would have to bear this in mind while negotiating prices in the upcoming seasons,” he added. Sumangalam Exports is into manufacturing and export of woven home textile products.
Rajiv Sharma, GM – Marketing, Aarti International, Ludhiana (cotton yarn manufacturing and exporting company) believes that Cotton Corporation of India (CCI) will have a major role in creating a balance. “Due to this decision, CCI will have to buy and hold the substantial amount of cotton and due to one big party holding a major part of the stock, other big traders can easily manipulate the market,” he added. Everyone in the industry knows about the hassle of buying cotton from CCI.
India exports a good chunk of its cotton production and in the coming season, China is expected to buy a big share of Indian cotton as it has already booked 5 lakh cotton bales with the ginners in India which will lead to further price increase. Prabhu Damodharan, Secretary, Indian Texpreneurs Federation, Coimbatore who is very much active in cotton industry, compared it with global scenario. “Across the globe, all stakeholders have to pay a little more,” he noted.
B.N. Monnappa, MD, Cotton World, Bangalore connects it with the lack of long-term policy formation by the government. “I totally agree that farmers should get the fair price but at the same time, the Government should keep in mind the interest of apparel manufacturers. This historical increase in MSP definitely shows the lack of policy vision of our Government; overall policies are so frequently changing that we can’t think about long-term, can’t plan properly and are forced to face losses.” Cotton World is one of the leading apparel exporters of Bangalore who is working with many good overseas buyers.
Garment manufacturers are also divided on the issue as to who is going to bear the brunt of this increased cost as cotton involves the entire supply chain of the textile industry. Tushar Jain, Director, Pasupati Spinning and Weaving Mills, Delhi (a vertically integrated company) is of the view that mills are not taking note of this even now; same goes with garment manufacturers who will receive the required orders. When they will be having fewer orders, spinning mills will be forced to bear the increased cost. Though buyers and retailers are also aware of all these developments, they will not counter this decision.” He further adds, “Overall it is going to hurt margins of garment exporters who are already under pressure.”
“Hopefully, the share of increase in price will be absorbed by farmers, mill sector as well as garment manufacturers like us. If required, we will also try to convince the buyers to share the burden”, concludes Vikram Jit Singh, MD, Fiori Creations, a well-known garment exporter from Faridabad.