The Indian government announced its intention to partially repeal a recent ban on the export of cotton on Monday, just one week after originally enacting the measure.
Export permits issued before the ban will be re-validated within the next ten days, Commerce Secretary Rahul Khullar said on Monday. Cotton exporters will be allowed to ship 2.5 million bales of cotton that had already been approved for export before the ban, avoiding potentially disastrous defaults.
However, part of the ban still remains in place, with the issuing of new cotton export registration certificates suspended until an unannounced future date, according to the official statement released by the Indian government’s Ministry of Commerce and Industry.
The surprise 5 March ban – which the government had said was needed for ensuring domestic cotton supply – had run into strong resistance from the country’s agriculture minister, leading politicians from cotton-growing provinces, and Indian cotton farmers and traders. (See Bridges Weekly, 7 March 2012)
The move also drew a quick response from China, the Indian cotton industry’s largest foreign purchaser.
New Delhi’s recent export ban follows another that came in 2010. Frustrated with the market volatility caused by the world’s second largest cotton exporter’s sudden prohibitions, the China Cotton Association – which is supervised by the country’s Ministry of Civil Affairs – released a statement on 8 March arguing that India’s manoeuvres “disturbed international cotton trade order seriously.”
Other countries ‘stockpiling’, India says
The government also plans to review all of the cotton export permits that have been issued within the past two months in response to a perception that other countries are accumulating excessive reserves, leading to domestic shortages.
“More than 85 percent of shipments [from India] is going to China. We have evidence that they were stockpiling,” Secretary Khullar told reporters on Monday.
The continuance of a full prohibition on new export registrations has some industry groups concerned about the overall effect on trade of Indian cotton.
“We are very disappointed,” Dhiren Sheth, president of the Cotton Association of India, told the Wall Street Journal in response to the new policy, adding that he was not opposed to the review of existing registration certificates.
“I am concerned about new registration certificates not being allowed,” he continued. “That means the flow of cotton has been stopped, blocked.”
A week of policy shifts
The latest developments follow a series of abrupt changes in India’s cotton export policy over the past week.
The 5 March ban was followed by a government announcement of a partial reversal on 9 March, before a complete repeal was announced two days later. The full repeal was declared by Commerce Minister Anand Sharma.
The policy changed again the next day when Secretary Khullar announced the current moratorium on new registrations.
A group of ministers is scheduled to review the policy again in two weeks.
If the export ban is ultimately lifted in full, the world’s supply of cotton is expected to outpace demand by a large margin. A report issued on 9 March by commodities researchers at the brokerage firm Morgan Stanley projected a record global surplus of cotton, in the case of unrestricted Indian exports.