India’s cotton exports suffer due to cash crunch

The Dollar Business Bureau

In the backdrop of the ongoing cash crunch, which emanated after the government demonetised high-value currency notes, cotton exports from the country has come to a standstill, as the farmers have delayed their shipments in the absence of cash payment.

According to the industry officials, exports of 1 million bales of cotton from India have been delayed, after the demonetisation prompted the farmers to postpone sales.

The supply crunch has substantially increased prices in India, which could force buyers to look out for other cotton-producing markets such as Brazil, the US and several African countries. It could also hinder India's total cotton exports in the financial year 2016-17 marketing year which started on October 1.

November usually remains a peak supply month, but since the supplies have stopped due to the cash crunch, India’s cotton exports could fall down considerably, while giving other cotton-producing countries an edge in the importing countries. Some of the exporters said they are ready to pay farmers by cheque, but they are insisting on cash. This year, the US cotton is already going higher at harvest time.

India was expecting a bumper crop of 35 million bales this year, and several Indian traders had contracted 2 million bales for exports to several countries including Bangladesh, China, Pakistan and Vietnam for shipments during November to January.

However, the demonetisation chaos has considerably affected the trader, as they have managed to ship only about 300,000 bales. The surge in local cotton prices is also making traders reluctant to sign new export orders, as overseas prices have become lower than local prices.

Several industry officials have contradictory views on India’s current state of cotton and its surged prices. They also feel that the cotton prices will moderate over a period of time as India is expecting a bumper cotton crop this season.

Earlier this month, Prime Minister Narendra Modi discontinued Rs.500 and Rs.1,000 notes to crack down on corruption. But the decision has disrupted trading of several commodities including cotton and soyabean since most farmers prefer payments in cash.