Cotton Association opposes creation of buffer stock

Mumbai based Cotton Association of India (CAI) have rejected the central government to set up buffer stock for cotton crops.

"We have learnt from newspaper reports that the textile industry has urged the government to direct Cotton Corporation of India (CCI) to procure 7 to 8 million bales cotton in the peak season and retain it as buffer stock and sell this quantity only to actual users during May-September," Dhiren N. Sheth, president of CAI said in a statement on October 26, 2016.

Opposing such a move, CAI said that, if this buffer stock if implemented, this will take the country back to the pre-liberalised era of late 1980s and early 1990s.

The idea of creating a buffer stock for exclusive use by a certain sector is wrong as it will not only distort the market but will also unsettle other sectors of the cotton value chain. 

Apart from this, creation of a buffer stock system would require a total investment of close to $2.40 billion (Rs 16,000 crore) for procuring the desired 8 million bales of cotton which in turn will involve a total recurring expenditure of hundreds of crores a year by way of carrying cost including interest and warehousing cost. In addition to this, CCI will have to bear the loss that may arise due to fluctuation in prices.

CAI also pointed out that, China which had implemented a similar reserve policy and created a huge stockpile of cotton, suffered enormously and eventually decided to liquidate their stock. Their cotton economy is still reeling under the debacle that the cotton reserve caused to it.

One must also remember that China is a huge cotton deficit country while India is a huge cotton surplus country and cotton is available to Indian mills at their doorstep. This is another good reason why India should not follow suit and create any buffer stock. 

Moreover, India should also learn a lesson from mistake that China made by creating a buffer stock, which created inefficiencies in their system for which China continues to pay a heavy price even now.

If the problem sought to be addressed by creating a buffer stock scheme is non-availability of funds with the textile mills to buy and stock cotton, it would be appropriate to address this through banking channels, Reserve Bank of India and the Finance Ministry rather than creating this scheme, CAI stressed.

A similar proposal that was mooted earlier for creating a strategic cotton reserve for exclusive sales to mills, was rejected by the government. 

In view of the foregoing, we urge the government to not go ahead with creation of the buffer stock system in cotton, CAI concludes.