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NDIA: Imposes ban on all cotton exports
Author: Leonie Barrie | 5 March 2012
The Indian government today (5 March) imposed a ban on all cotton exports from the country, in a move that is likely to put pressure on global supplies and prices. India is the world's second largest producer of cotton, and the decision announced by the Directorate General of Foreign Trade (DGFT) comes into play with immediate effect.
The ban also applies to exports of raw cotton that have already been registered but not yet shipped, and "transitional arrangements will not be applicable," a statement said.
"Export of cotton has been prohibited till further orders," the DGFT added.
A separate statement from the government said the decision to ban further exports "took into account the trend of domestic consumption and depletion of domestic availability."
It added that almost 9.4m bales of cotton have already shipped in the current marketing year, which began on 1 October, against an estimated export surplus of 8.4m bales. The measure also follows recent calls by Indian apparel exporters for steps to curb the country's cotton shipments to China and conserve supplies for local textile mills.
The Chinese government is in the process of building its national stockpiles in a move designed to ensure domestic cotton supplies and help avoid future fluctuations in cotton prices. The scheme began in September and is due to run for seven months until the end of March.
The rebuilding of the Chinese national reserve means that by the end of 2011/12 it might hold as much as a quarter of global stocks, the International Cotton Advisory Board (ICAC) said last week.
However, the Apparel Export Promotion Council (AEPC) claims more than 85% of India's total cotton export in the current year has been shipped to China, and has created "a negative impact" on the industry. AEPC chairman Dr A Sakthivel last month said the local textile industry would be deprived of good quality cotton and would also face shortages if "the export figure is revised further upwards."
The trade group asked the government to keep 2.5m bales of cotton in reserve for local firms. However, it seems the government has now gone even further than an earlier ban introduced back in April 2010, when it put a stop to exports of raw cotton that had not already been registered.
It also imposed monthly limits on the amount of cotton, even under registered contracts, that could be exported, in an attempt to stem rising costs and reverse the shortage of cotton yarn for domestic firms.
Shipments resumed in November that year, but a cap of 5.5m bales was imposed, although this was raised to 6.5m bales in May 2011. Restrictions on cotton exports were eventually lifted from the start of the current season on 1 October 2011.
The government today said its decision comes after higher-than-expected exports in the 2010-11 seasons reduced the amount of stock carried over to 2011-12 from 4.8m bales to 3.3m bales. It also said estimates of India's cotton production in the 2011/12 season, which ends on 30 September, have fallen from 34.5m bales to 34.0m bales. International cotton prices for May delivery are up 4.3% to 92.2 cents a pound on the ICE Futures US exchange in New York.
Discussion Question:
1. Why Government of India (as an external force) imposing ban on all cotton exports. You are required to discuss the main reasons by keeping in view the above situation.
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ZAIB RANA
SEMESTER 2ND MBA
VERTUAL UNIVERSITY OF PAKISTAN
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