12/03/2012

Flip-op on cotton export ban: The inside story - The Economic Times
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Flip-flop on cotton export ban: The inside story

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It's been a bizarre week, even by UPA II's standards. On March 5, commerce ministry suddenly banned cotton exports. On March 9, it said the ban will be

The interim 120 hours were full of action, emotion, drama and double-speak. What happened here? Explanations range from the barely credible (Congress to undermine Gujarat chief minister Narendra Modi), the predictable (a political heavy-weight punted on New York futures), the frankly bizarre (a "foreign ha the specious (exporters are hoarding cotton overseas).

Rewinding to March 2010 is an easier way to understand why the ban was imposed but couldn't last even five days. That year too, India banned cotton exp there were important differences. China's brisk buying created visible domestic shortage. With world prices at 140-year peaks, Indian prices also doubled, making raw material exorbitant mills. When exports crossed 8 million bales, textile minister Dayanidhi Maran demanded a ban.

It was opposed by agriculture minister Sharad Pawar batting for farmers/traders, and commerce minister Anand Sharma, who wanted higher export number flew thick and fast, along with allegations of collusion, imbecility and short-sightedness. The PM, the FM and the PM's economic advisor Dr Rangarajan dragged into the debate. An export duty also proved no hurdle.

Ultimately, it boiled down to this: was it possible to support the textiles industry, the country's largest employer after agriculture and growing by 11%, withou exports. The consensus was no. So Pawar was overruled. The ban held because there was genuine shortage, real-time information and consensus.

This year's situation is different. The textiles industry is in recession. It can at best consume 24 million bales this year. However, farmers have gathered 3 bales in the 2011-12 season. World market too is oversupplied and cotton futures are expected to be among the worst performers of 2012. Mandi p wobbling close to MSP.

In January, the Cotton Advisory Board, comprising officials from agriculture, textiles and commerce ministries, traders and millers, did the maths and s could afford to export 8.3 million bales in 2011-12 season without stressing any part of the value chain. It was a critical limit for stable business. But DGFT registrations to cross 10 million bales. This information wasn't disclosed till February 23.

February-March is peak arrival time, when supply in mandi exceeds mill demand. Once farmers have sold off their harvest, mills purchase from ginners/tr next six months. On February 29, exporters told government Chinese demand was picking up and they had registered orders for another 3 million bales 40% of this year's harvest or 13 million tonnes would be shipped, which meant starving local industry.

The suddenly-altered scenario triggered panic. The agriculture, commerce and textiles secretaries agreed on March 2 to act fast. The export duty op available but slow. Now that textiles and commerce share a minister, and commerce has power to ban exports under foreign trade regulations, it could be case of one minister, one file, and one signature. Sharma signed off on the ban on March 3 and left for Indonesia.

Unfortunately, it's never that simple. This may have bypassed tedious inter-ministerial consultations but gave Pawar a handle to cry foul and say h informed. Pawar's claim is hard to swallow since the agriculture secretary attended crucial meetings. Moreover, as agriculture itself has forecast a smalle in second advance estimates, he knows further exports are untenable. But with farmers on the war path in main grower Maharashtra, Pawar needs a face-s

Commerce has the cotton balance sheet on its side. But Pawar has emotion and hurt ego. For now, emotion has won. Congress MPs in Andhra Pradesh, and Maharashtra have complained to UPA chairperson Sonia Gandhi that it could be political harakiri. Forced to eat humble pie, Sharma couldn't defend Allegations that exporters were selling to sister companies didn't stick because it is normal trade practice.

With Parliament starting today, the weekend saw hectic political parleys to resolve the imbroglio. So who made money from this confusion? For once, the clear gainers. Exporters may be allowed to resume registrations only after two weeks and meet tougher conditions. Flattened by Rs 200,000-crore debt, th industry can't be revived by cheap cotton. After rallying in New York on March 5, cotton futures flopped back in a day. So punters didn't either.

The lessons lie elsewhere. Last year's ban taught us that farmers, traders and industry don't have equal right to make money. It is political largesse. Las confusion shows that the key to any successful decision is buy-in from the public. And their politicians. Prompt bureaucratic action can be botched understanding of political consensus.

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12/03/2012

Flip-op on cotton export ban: The inside story - The Economic Times

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