The Cotton Association of India has opposed textile industry's request to central government to ask the Cotton Corporation of India procure cotton to create a buffer stock in order to sell it to users during next season between May to September.
A press release issued by CAI president Dhiren Sheth on Wednesday stated, "We have learnt from newspaper reports that the textile industry has urged the government to direct CCI to procure 70 to 80 lakh bales cotton in the peak season and retain it as buffer stock and sell this quantity only to actual users during May-September. The CAI is totally opposed to creation of any such buffer stock. If implemented, this will take the country back to the pre-liberalised era of late 1980s and early 1990."
The release says that the creation of buffer stock for exclusive use by a certain sector was wrong as it would not only distort the market but would also unsettle other sectors of the cotton value chain. Apart from this, creation of a buffer stock system would require about Rs 16,000-crore investment to procure 80 lakh cotton bales, which in turn, will involve total recurring expenditure of hundreds of crores a year by way of carrying cost including interest and warehousing. Additionally, CCI will have to bear the loss that may arise due to fluctuation in prices, the release states.
“It will, in turn, involve a total recurring expenditure of hundreds of crores a year by way of carrying costs, including interest and warehousing costs. In addition to this, CCI will have to bear the loss that may arise due to fluctuation in prices,” Sheth said.
He cited the example of China, which had to suffer an enormous loss, eventually leading the country to liquidate its stocks, after it had followed a similar reserve policy. China’s cotton economy is still reeling under the debacle that the cotton reserve caused to it, he said.
According to CAI, if the problem sought to be addressed through creation of a buffer stock is non-availability of funds with textile mills to buy and stock cotton, it would be appropriate to address this through banking channels, the Reserve Bank of India and the Finance Ministry rather than creating such a scheme.
A similar proposal that was mooted earlier for creation of a strategic cotton reserve for exclusive sales to mills was rejected by the government.