In a first, the government is planning to launch a cotton price index taking into account benchmark rates from four different sources, as it attempts to curb speculations across various markets and trading platforms, and bring about further transparency in the price discovery mechanism.
Sources said that a sub-committee of the state-backed Cotton Advisory Board (CAB) has suggested that the index be made up of prices of cotton on the Multi-Commodity Exchange of India (MCX) and those of the Cotton Association Of India (CAI), the Indian Cotton Federation (ICF) and the Cotlook Index.
The prices can be used as a benchmark by all stakeholders, including ginners, traders & even international trading agencies. "The basic idea is to develop an index, taking into account the price trends across markets – spot, futures, domestic and international," said a source. While the CAI and the ICF provide data on daily cotton prices across various physical markets in the country, MCX offers futures prices of cotton.
The Cotlook Index, which tracks the delivered price of American cotton in China, will be included in the index to factor in the movement of prices in the world's largest exporter (the US) and the biggest consumer (China). Cotlook is already widely tracked across the globe by various stakeholders in the cotton and textile sector. The exact composition of the index and the weight attached to prices of different sources would be finalised soon.