The inability of the Cotton Corporation of India to manage 75 lakh bales procured by it in 2008-09 crop year, has prompted the government to offer discounts on bulk purchase of cotton.
The CCI price range is expected to be Rs 19,800-19,900 per candy. This is unlikely to attract the domestic textile sector. The textile sector has kept off procuring owing to a steep price variation with the ongoing market price and the international rates.
As per a source, the Centre is likely to release Rs 500 crore to procurement agencies to dispose of cotton by offering bulk discounts and is due to make an announcement later this week.
The discount could be in the range of Rs 500 and Rs 1,000 per candy for minimum purchase of 50,000 bales. Minimum lot size for bulk purchase in 10,000 bales and the nature of discount will vary accordingly.
Moreover, CCI is selling the most popular variety of cotton, Shankar-6, at Rs 20,900 per candy. The selling price of this cotton to those buying in bulk is expected to be Rs 19,800-19,900 per candy. This price of the Shankar-6 will still be higher than the current market price of cotton (Rs 19,500-20,000 per candy) that will keep off buyers.
According to analysts, "The concept of bulk discount per se is wrong because it would keep close to 95% of the domestic sector starving for cotton."
India is expected to produce 290 lakh bales in the current crop year against an estimate of 322 lakh bales. Close to 210 lakh bales is estimated to have arrived in the market by now. Only 10-15 lakh bales have been sold in the domestic market, of the 90 lakh bales procured by procurement agencies (CCI and National Agricultural Cooperative Marketing Federation of India).
The rest has not found takers among textile mills, traders or exporters, who find the cotton exceptionally highly priced compared to international rates.
Earlier, the government hiked the MSP of cotton in September 2008 (long-staple cotton to Rs 3,000 per quintal for 2008-09 from Rs 2,030 and for medium staple cotton to Rs 2,500 from Rs 1,800 per quintal), cotton witnessed a freeze on procurement.
The domestic textile sector and exporters kept off buying when it has been observed that cotton commanding a price of Rs 30,000 per candy in 2008. This prompted the Centre to direct the CCI to step in.
The industry sources stated, "After the hike in MSP of cotton in September 2008, CCI procured the cotton when it was Rs 26,000 per candy. "Now that the market price of the most popular variety of cotton, Shankar-6, is between Rs 19,500 per candy and Rs 20,000 per candy."
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