Textile traders have said that to even out the flux in cotton prices, the textile ministry needs to provide financial support to mills for purchase of cotton.
Mills are of the view that except for a few large players, almost the entire industry ends up buying a very small portion of cotton during the peak season of November to March, while rest is bought by wealthy traders or exported to competing countries like China and Pakistan. Since the textile industry is not able to buy cotton for the entire year, this brings down cotton prices during the peak season. As a result even the farmer does not get the deserved price for cotton. Moreover, the government's minimum support price (MSP) comes into the picture. Last year, the government had to procure 2.5 million bales under MSP which results in losses for the government. However, later when their stock depletes and demand for cotton increases among textile mills, the commodity's prices rise substantially leading to price fluctuations in the market.
As per the current norms, textile mills can avail credit for buying cotton at 14 %. This credit limit is only for three months. Add to that, banks ask for a margin money of 25 %, while only the rest 75 % is financed by banks. If the textile mills get a 5 % interest rebate, apart from an extension of credit limit to nine months and reduction in margin money to 10 %, their cotton buying and stocking capacity increases tremendously. This will allow the farmer also to get better prices. And the govt. will also be spared the expense of buying cotton from farmers at MSP. In their proposal, the textile industry bodies have stated that by meeting their demands, the 5 % interest rebate will cost the exchequer around Rs 3,700 crore for five years. However, in return, the central and state governments will be able to generate additional revenues worth Rs 10,000 crore and Rs 2,500 crore, respectively, through additional customs, excise and other taxes due to increased cotton purchases by textile mills.