THE Indian government finds itself in a royal mess so far as its cotton policies are concerned. Domestic and international textile workers, cotton growers, spinners, organised textile mills, Indian exporters of cotton, yarn and apparels and garments and even importers of all these commodities and products around the world are lashing out at the government over its confused policies.

The government imposed a ceiling of 720 million kg for the export of cotton yarn for 2010-11 (October 1, 2010, to September 30, 2011), following intense pressure from the domestic textile industry.

Most of the consumers of cotton yarn are located in the southern states of Tamil Nadu and Andhra Pradesh, where hundreds of export-oriented apparels units have shut down and tens of thousands of workers have lost their jobs because of the soaring price of cotton yarn.

Both states are crucial in political terms for the Congress, which dominates the United Progressive Alliance (UAP) government. But the party is facing problems in both the southern states. The Dravida Munnetra Khazagham (DMK), a regional party of Tamil Nadu, is a key member of the UPA, but which has dragged the government led by Prime Minister Manmohan Singh into an unsavoury controversy over the 2G telecommunications scam.

The federal textiles minister, Dayanidhi Maran, is also an important member of the DMK, and with the apparels and garment export industry concentrated around the key Coimbatore-Tirupur belt in the southern Indian state, it was just a matter of time before the Indian government succumbed to pressures.

The federal textile ministry imposed the 720 million-kg cap on cotton yarn exports, pointing out that the move would soften the prices of cotton and yarn. The government accuses cotton and yarn exporters of taking advantage of the spurt in global prices to deprive the domestic industry of the commodity.

Cotton yarn prices have shot up by about 80 per cent over the last one year, touching an all-time high of Rs240 a kg. Cotton prices have doubled to Rs46,000 a candy during the same period.

With soaring cotton yarn prices, suppliers ratcheted up exports; total exports are expected to top 800 million kg this year, as against less than 600 million kg last year. The Confederation of Indian Textile Industry (CITI) argues that there has not been any shortage of cotton yarn in the domestic market, and only a section of the textile industry has been clamouring for curbs on exports.

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“Following the restriction on cotton yarn exports from India, international prices for cotton yarn will shoot up, since India is currently the largest supplier of cotton yarn in the global markets,” explains Shishir Jaipuria, chairman, CITI. “The other major cotton yarn exporting countries such as Pakistan, Turkey and Indonesia will be the major beneficiaries of this price increase.”

* * * * * THE government's Cotton Yarn Advisory Board estimates that India's yarn production will add up to 3,400 million kg; domestic demand is pegged at around 2,650 million kg, with exports accounting for the remaining 750 million kg. The Apparel Export Promotion Council (AEPC), which represents the apparel and garments export sector, has been lobbying for curbs on exports.

“Our demand is that the government should keep cotton yarn export quota at 650 million kg like last year,” says Premal Uddani, chairman, AEPC. “The decision to impose curbs, although late, is a welcome move which will certainly benefit the textile industry.” Textile minister Maran expects the price of cotton yarn to stabilise by December 15. According to him, the country is facing a shortage of cotton and a group of ministers is toying with various plans to tackle the problem on a long-term basis.

Last month, textile manufacturers and exporters went on a daylong strike, protesting against the export of cotton yarn, which had triggered off the price rise, leading to a 30 per cent increase in production costs. About 50,000 manufacturing units across the country observed the strike. The industry claims that over 20 per cent of export units have had to shut down their operations because of the steep increase in yarn prices. India's textile and garments exports add up to about Rs500 billion (about $11 billion), with the government aiming to double this in a few years.

Udani says that the strike reflected the concerns of the six million people employed by the textile industry. “The strike reflects and highlights the gravity of the problem and now the time has come for the government to intervene and consider our demands.”

But the spinning industry and cotton growers are furious with the government decision. Spinners fear that the export curbs would lead to the closure of many units in the country, leading to unemployment.

The government had earlier imposed curbs on raw cotton exports, setting a ceiling of 5.5 million bales (one bale equals to 170 kg) for the current year (October 2010 to September 2011). India is expected to have a bumper harvest of about 32 million bales of cotton this year.

However, the curbs on raw cotton and cotton yarn exports have not gone down well with growers. Gujarat, which has emerged as a major cotton-growing region, accounting for nearly half of cotton exports from India, has reacted angrily to the restrictions.

According to a state government spokesman, cotton production is expected to jump by nearly 30 per cent over last year's figures of 7.8 million bales. The curbs would, however, result in farmers losing about Rs40 billion, he adds. Farmers are being forced to sell their produce at hefty discounts to mills in south India; the tragedy is that even as cotton prices are soaring the world over, cotton growers in Gujarat are having to off-load their produce at 40 per cent lower prices within the country.

THE international reaction to the supply curbs have also been negative. Last month, textile associations and trade unions representing nearly four million workers in about a dozen countries around the world wrote to their respective governments, urging them to lobby with India, seeking a relaxation in the export of raw cotton and cotton yarn. The curbs violate several articles of the General Agreement on Tariffs and Trade (GATT), the petitioners have argued.

The textile associations and trade unions have also accused India of exploiting the situation, especially when global cotton supplies have declined sharply. India's holding back of nearly 3.5 million cotton bales from the international markets have triggered off a hefty increase in the price of the commodity. Worse, with demand from China continuing to increase, other markets in the world are being deprived of cotton, they add. Textile lobbies in the US, the European Union, Turkey and Latin America are also seeking action against India for causing a global shortage of cotton and a spurt in the price of the commodity.

Uddani of the AEPC admits that many countries would be adversely affected by the curbs imposed by India. “But every country has to look after its own industry,” he says, justifying the imposition of export curbs. The AEPC also claims that the bulk of India's cotton yarn is exported to countries such as China and Bangladesh, which are India's biggest rivals in garment exports.

The hike in cotton prices has also resulted in a spurt in the price of man-made fibre. Synthetic fibre producers such as Reliance Industries have raised the price of the fibre by Rs3 a kg in recent days. Manmade fibre costs are generally linked to the price of crude oil, but now they are increasingly tied to cotton prices as well. RIL is also focusing on export markets, as demand for synthetics is rising in view of the global cotton shortage.