The recent hike in minimum support prices (MSPs) of cotton as a result of the Centre’s decision to elevate the MSPs of Kharif crops is bound to have impact on the global markets as India is the largest cotton exporter. The hike in MSP of cotton is also expected to firm up cotton prices in the domestic markets. The MSP for cotton has witnessed a hike of 28%.
To moderate situations of distress sales by assuring farmers of a fixed price the government intervenes in the market directly by setting up the MSP. This saves the farmer in the event the prices fall in the open market. The MSPs for crops are regularly announced before each summer and winter crop season.
The increase in MSP of cotton will check the outflow from the country and result in adequate domestic supply for the season, said cotton traders. In short, cotton exports are expected to take a beating. Cotton traders also pointed out that the MSP hike was steep and will result in multinational companies participating in the domestic market. It will also in a big way chip the export of raw cotton.
From the exporters’ front there was concern expressed on losing the cost advantage fetched in raw cotton. They were of the opinion that instead of putting the onus of MSP on traders, the government could directly pay the difference amount between the MSP and the market price to the farmers.