cotton gov data

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S ECTION I: COTTON F IBRE


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T ABLE OF CONTENTS

SUMMARY COTTON FIBRE .............................................................................................................. 24

1.1. INDIAN COTTON FIBRE SCENARIO ............................................................................................ 32

COTTON CULTIVATION IN INDIA .................................................................................................. 32

CONSUMPTION OF COTTON IN INDIA ......................................................................................... 38

COTTON MARKETING IN INDIA: ................................................................................................... 40

COTTON EXPORT & IMPORT ........................................................................................................ 44

TREND IN INDIAN COTTON PRICES ............................................................................................ 47

1.2. COTTON TEXTILE VALUE CHAIN ................................................................................................ 51

1.3. POLICY INITIATIVES IN THE COTTON FIBRE AND TEXTILE SEGMENT ................................. 55

1.4. WORLD SCENARIO FOR COTTON FIBRE .................................................................................. 63

WORLD COTTON DEMAND-SUPPLY DYNAMICS ....................................................................... 63

A BRIEF REVIEW OF MAJOR COTTON PRODUCING COUNTRIES .......................................... 66

STOCK-TO-USE RATIO ANALYSIS: .............................................................................................. 77

1.5. FUTURE PROJECTIONS FOR COTTON FIBRE .......................................................................... 79

FUTURE OUTLOOK OF INDIAS COTTON PRODUCTION .......................................................... 79

FUTURE OUTLOOK FOR COTTON CONSUMPTION IN INDIA.................................................... 81

IMPLICATION: ................................................................................................................................. 82

ESTIMATING THE INVESTMENT REQUIRED FOR STRENGTHENING THE TEXTILE VALUE

CHAIN .............................................................................................................................................. 83

1.6. THE SUB-GROUP ON COTTON TO FORMULATE NATIONAL FIBRE POLICY ........................ 91OVERVIEW ...................................................................................................................................... 91

KEY ISSUES IDENTIFIED BY THE SUB-GROUP .......................................................................... 91

RECOMMENDATIONS OF THE SUB-GROUP: ............................................................................. 92

1.A. ANNEXURE .................................................................................................................................... 98

CASE STUDIES SPECIFIC PRODUCTION TECHNOLOGY AND YIELD ENHANCEMENT

PROGRAMMES RUN BY CITI-CDRA AND SIMA-CDRA ............................................................... 98

COMPOSITION OF THE SUB-GROUP ON COTTON TO FORMULATE NATIONAL FIBREPOLICY .......................................................................................................................................... 106


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S UMMARY C OTTON F IBRE I. The sub-group on Cotton, which was constituted under the National Fibre Policy, has enunciated

policy recommendations for development of the fibre. Cotton is one of the most important and widely

cultivated cash crops across the world. It is also one of the most important commercial crops

cultivated in India. Cotton has around 59% share in the raw material consumption basket of the Indian

textile industry. Thus, it plays a major role in sustaining the livelihood of an estimated 5.8 mn cotton

farmers and about 40-50 mn people engaged in related activities such as cotton processing and

trade. The world cotton yield increased from 613 kg/ha in 2000-01 (season beginning August 1) to797 kg/ha in 2007-08 (season beginning August 1). India has the largest cotton cultivated area that

constitutes around 30% of the global cotton area. Domestic cotton production has increased

substantially to 290.0 1 lakh bales in 2008-09 2 from 30.6 lakh bales in 1950-51. Cotton yield in India

improved remarkably to around 524 kg/ha in 2008-09 from 278 kg lint/ha during 2000-01. However,

cotton productivity is still lower in India when compared with the world average yield of 767 kg/ha.

COTTON F IBRE S CENARIO : WORLD

II. World cotton production declined for the second consecutive year in 2008-09 by 10%. In 2007/08 3,

the production levels had dropped by around 2%. In fact, the world cotton production at 23.5 mn

tonnes during 2008-09 is the lowest since 2004-05. The reduction in world cotton area for the second

consecutive season was one of the reasons for the fall in production; a significant area under cotton

cultivation was shifted to grains and oilseed production because these earned more attractive prices

than cotton. In the last few years world cotton harvested area declined at a sustained rate. According

to the ICAC data, area under cotton cultivation shrank to 30.66 mn ha (estimated) in 2008-09 from

32.84 million ha (estimated) in 2007-08. During 2008-09, cotton yield also registered a decline

compared to the previous year primarily on account of unfavourable weather conditions across the

world. After witnessing sustained improvement since 2000-01, the world cotton yield is forecasted to

have moderated to 767 kg/ha in 2008-09 from a peak of 797 kg/ha in 2007-08. World cotton yield has

increased by around 17.8% between 2003-04 and 2008-09 mainly due to extensive use of BT cotton

varieties across the globe. Genetically modified (GM) seeds constituted around 48% of the total

harvested area globally in 2008-09. During 2008-09, almost all the major cotton producing countries

witnessed a decline (y-o-y) in cotton production, except Pakistan and Australia. China, India, USA,

Pakistan, Brazil and Uzbekistan accounted for almost 85% of the world cotton production in 2008-09.

1 Indian bale is of 170 kg2 Indian cotton year October to September3 2008-09 refers to Cotton year August 2008-July 2009 (year mentioned in this section refer to cotton year from August to July


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Even world cotton imports and exports declined during 2008-09. Exports from major exporting

countries such as the US, India and Uzbekistan fell and caused world exports to decline by almost

25.36% in 2008-09. Imports from some of the major importing countries such as China, Turkey and

Pakistan also declined.

COTTON F IBRE S CENARIO : INDIA

III. Cotton production in India has more than doubled in a span of 7 years. Cotton production reached a

peak of 307.0 lakh bales during 2007-08 from 140.0 lakh bales in 2000-01 but it fell to 290.0 lakh

bales in 2008-09. The gradual increase in cotton production over the years can largely be attributed to

the phenomenal increase in the yield of cotton. The introduction of BT cotton seeds has played a

catalytic role in enhancing cotton production in India. The consumption of cotton by the textile mills

and small-scale spinning units has witnessed sustained increase since 2001-02, except in 2002-03

when the total domestic consumption declined. Domestic consumption of cotton fibre increased at a

CAGR of 7.0% rising from 168.8 lakh bales in 2002-03 to 236.9 lakh bales during 2007-08, and fell to

229 lakh bales in 2008-09. Cotton consumption has witnessed a sustained increase since 2003-04

onwards due to growing demand for Indian textiles and subsequently, there has been considerable

expansion and modernisation of the textile mills. Even though the Indian cotton consumption has

increased at a rapid pace in the last few years, it has not kept pace with the growth in domestic cotton

production, which has led to a surplus of production since 2003-2004. As a result, India has emergedas one of the top exporters of raw cotton in the world. Currently, India is the second-largest exporter

of cotton after the US. In order to boost cotton exports, the Indian government liberalised raw cotton

exports since July 2001, doing away with the system of allocation of cotton export quota in favour of

differ ent agencies and traders. Over the years, Indias cotton export has been growing at an

impressive rate, except for FY05, when exports dipped. In FY08, India exported 88.5 lakh bales of

cotton. Indias exports during 2008 -09 have been estimated to have declined to 35 lakh bales.

FUTURE OUTLOOK OF INDIAS COTTON PRODUCTION AND CONSUMPTION

IV. Three different scenarios were examined to arrive at the future projection of the demand-supply

scenario for cotton fibre. Cotton production largely depends on the area under cotton production and

productivity. Considering the issues pertaining to food security and land pressures, the area under

cotton production is assumed to be largely constant at the current level. Thus, the future production is

expected to be driven by improvement in cotton yield. Yield is assumed to grow at alternate rates of

4.0% and 4.7%. Additionally, the Directorate of Cotton Development, Mumbai, has also made

projections for cotton fibre production. The estimates made by the directorate are closer to our

estimate that is based on an assumption of 4.7% increase in yield per hectare till the terminal year,2020. The projections for consumption of cotton fibre have been arrived at through projections for


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cotton fabric consumption and through use of conversion ratios. The final scenario for 2020 is

encapsulated in the table below.

Exhibit I: Yield growth assumed at 4.7% (in lakh bales)

Year Production Consumption Surplus

2019-20 483 413 70

Source: D&B India

MAJOR IMPLICATIONS

V. In the years to come, the robust increase in domestic consumption is likely to drive down the surplusin cotton. Therefore, it is essential that there is greater focus on enhancing domestic production of

cotton significantly to cater to the expected increase in domestic demand.

Focus on Enhancing Production:

VI. Given that the area under cotton cultivation in some of the major cotton producing countries such as

the US has declined in the last few years, India has an opportunity to emerge as a leading exporter of

raw cotton. Moreover, cot ton remains Indias strength in the global T&C markets. In the coming years,

this strength is expected to accelerate as the area and production of cotton has been declining in

China and the US. Over the past few years, the textile processing base has been increasingly shifting

to emerging countries. Thus, by increasing cotton production and strengthening the textile value chain

India will be able to capture the rapidly-evolving growth opportunities in the cotton industry.

Focus on higher investments in textile value chain

VII. Given that the production of cotton fibre, as well as MMF fibre and filament yarn is expected to

witness a substantial increase in the next 10 years, the installed capacity for value addition under thetextile value chain also needs to witness substantial improvement to absorb the expected increase in

fibre production. It is estimated that investments worth Rs 176,510 crore will be needed during FY10-

FY20 for creating the required capacity along the textile value chain on the basis of estimate of the

increased fibre production 4. The underlying assumptions to arrive at investment estimates are based

on CITIs Vision for Indian Textile and Clothing Industry 2007 -2012, Report of working group on

Textiles & Jute industry for the eleventh five year plan (Ministry of textile) and inputs from major

industry stake-holders, who are members of the sub-group.

4 The D&B estimates for fibre consumption for cotton and MMF are an underlying assumption for these investment estimates.The consumption for cotton fibre in 2020 by domestic mills is assumed as 6885 mn kg and that for MMF fibre and filament isassumed as 6001 mn kg. The investment estimate therefore considers both MMF as well as cotton segments .


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Exhibit II: Investment requirement till 2020 (Rs cr)

Spinning 63,525

Weaving 38,485

Knitting 12,499

Processing 26,695

Garmenting 35,305

Grand total 176,510

KEY ISSUES IDENTIFIED BY THE S UB -GROUP ON COTTON F IBRE

VIII. The following key issues were identified by the members of the sub-group:

IX. Lack of irrigation facilities: Predominance of rain-fed area has been one of the major hindrances to

cotton cultivation in India. Almost 65% of the area under cotton cultivation is rain-fed and only 35% of

it is irrigated, thus, exposing the cotton productivity to the vagaries of monsoon.

X. Cotton contamination : Cotton is vulnerable to contamination at the harvesting, marketing and

ginning stages, if proper care is not taken. The two kinds of contaminants predominantly found in

cotton are fibrous and non-fibrous.

XI. Poor quality : It has been difficult to develop a globally-competitive cotton industry in India because of

the average quality of cotton. In fact, the cotton sector and the large textile enterprises have been

importing quality cotton to meet their growing demand for high-quality cotton products.

XII. Lack of infrastructure : The transport infrastructure is poor in India and the cost of transporting cotton

fibre from one state to another is substantial.

XIII. Problem of admixtures: There are inconsistencies in the strength, length, micronaire, colour and

reflectance of cotton as different varieties of cotton fibre with different physical properties are mixed

together. Admixture also makes the grading and testing of cotton difficult. Quality-conscious mills,

particularly the export-oriented ones, are compelled to engage themselves in expensive bale

management exercises to maintain yarn quality.


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XIV. Absence of uniform standards: Another issue related to quality of cotton has been the absence of

uniform quality standards across the country. While there are various agencies involved in the quality

testing and grading of cotton across the country, they do not adhere to uniform standards.

XV. Need for an Indian arbitration for imported cotton: The Indian textile mills importing cotton have to

encounter onerous problems because foreign buyers invariably stipulate arbitration by International

Cotton Association (ICA), Liverpool, in the sale contracts. India has been a regular importer of cotton

and imports will continue in future. Therefore, unless corrective action is taken in the right earnest,

problems will compound in future.

RECOMMENDATIONS OF THE SUB -GROUP ON COTTON

XVI. The following broad ob ject ives for the National fibre policy have emerged from the sub- groups

deliberations:

The National Fibre Policy should be fibre-neutral.

The fibre policy should accord priority to the cotton fibre value chain in the following order of

priority:

o Farmers

o Domestic mills

o Other cotton consuming countries

It should enhance production, sustainability and growth of cotton.

It should target enhanced competitiveness of cotton fibre, as well as ensure most judicious

and efficient utilisation of the countrys strength for sustainable development of all the sub

sectors of the cotton economy through backward and forward integration.

The cotton economy must be strengthened and its vibrancy improved through an upgraded

and a reformed marketing system and through conscious branding of cotton for use.

An institutional mechanism must be created that will monitor, coordinate and also create a

unified platform of all other interests in the lines of the National Cotton Council of the US.

XVII. The recommendation made by the sub-group members can largely be divided under the following

broad heads:

XVIII. Recommendations for enhancing production: The major interest of the policy for cotton fibre

should be to enhance production of cotton. Augmenting cotton production will not only help India to

meet the growing domestic demand but also will help the nation explore export opportunities. The


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following recommendations have been made by the members of the sub-group for augmenting cotton

production in India:

The members suggested that an institutional framework could be created for development ofcotton fibre. The institution thus established could provide funding and direction for research

in a holistic manner.

Improving irrigation facilities and water harnessing was considered imperative for enhancing

production and lowering its dependence on monsoon. It is recommended that the area under

irrigation could be increased to 60% from its present level of 38% at national level. Further,

drip irrigation system could be adopted for better water management. Drip irrigation system

could be adopted in at least of 30-40% of total cotton area.

Initiatives should be taken to increase awareness among farmers for adoption of rain waterharvesting, soil moisture conservation techniques, suitable agronomic practices in order to

increase the utilisation of rain water.

New farming practices could be developed to increase the cotton yield. Various programmes

could be devised to increase awareness regarding rain water harvesting, soil moisture

conservation techniques and suitable agronomic practices among the farmers.

Precision farming was considered important for enhancing cotton productivity. Emphasis

could be laid on spreading precision farming to im prove yield per unit area for all areas.

Measures could be taken to enhance production and supply of green manure / FYM /

compost / vermi- compost in the country to maintain soil productivity at sustainable levels.

Green manure / FYM / compost / vermi-compost production and supply has to be taken up at

a large scale under organised sector so that it becomes available for all cotton growers. This

is a must for maintaining soil productivity at a sustainable level.

Improve extension activities and provide certification facilities with subsidised inputs to cotton

farmers to sustain their income levels.

In field extension, public- private sector partnership projects may be launched on large areabasis, by ensuring technology inputs and marketing tie-up, so that diversion of cotton area to

other competing crops can be minimised.

National research thrust for the cotton production sector could continue. The focus of the

national research on cotton could be laid on increasing the lint productivity through

improvement in ginning outturn of varieties / hybrids to 40 42% as compared with 34 36%

of current cultivars.

On line pest monitoring system at block level and IPM network to advise the farmers should

be strengthened. Integrated disease and pest management strategies could be implementedvigorously on cluster basis.


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Availability of sufficient quantity of micronutrients as in case of NPK could be ensured.

Fertiliser companies could give equal importance to micronutrient manufacturing and

marketing.

The system of transfer of knowledge to farmers through Farmers Field School (FFS) should

be continued and it could be taken up in each Gram Panchayat of cotton growing area.

Sufficient number of Cotton Masters Trainer needs to be generated through season long ToF

training to ensure availability of 1 cotton master trainer at each block level.

Lessons from micro examples of yield improvement and production enhancement

programmes run by CAI, CITI, CDRA and SIMA in different states of the countries should be

adopted for other regions.

XIX. Recommendations for enhancing investment along the textile value chain: The interest

compensation of 5% available under the Technology Upgradation Fund Scheme (TUFS) has helped

incentivise investments in the T&C industry. TUFS has had a major role to play in the growth of the

industry and has aided an increase in investments in recent years in the sector. Given the significant

estimated investments required for the textile value chain, the Technology Upgradation Fund Scheme

can continue so that the industry may avail of the benefits under it.

XX. Recommendations for improving quality of cotton fibre: The focus of the national research on

cotton could be on optimising the components of fibre quality parameters to meet the end-use

requirements of the spinning sector, which is producing yarn in a wide range of spinning counts.

Overall kapas grading is absolutely necessary, and ought to be strengthened. To prevent

contamination in cotton fibre, use of white polypropylene bags for packing fertilisers could be replaced

by coloured polypropylene bags.

XXI. Recommendations for improving infrastructure: There is a serious need to improve the logistics of

cotton, which includes conduct of cotton and its upkeep in warehouses and at ports. The warehousing

should be scientific and IT-enabled to develop into dematerialised trading and movement of

goods. Pressed cotton also needs to be stationed and warehoused at accessible affordable places .

Steps could be taken to improve logistics for transporting cotton, so that cotton fibre can be supplied

from surplus to deficient areas in a clean manner.

XXII. Recommendation pertaining to export of cotton fibre: A healthy stock-to-use ratio should be

maintained to avoid any distortion in the cotton market. The trade policy for cotton could target

exports of surplus cotton, and imports in slots where there may be a deficit in domestic production.

There is no need for import duties, and any restriction on imports should be need-based only. Exports

of cotton fibre should be monitored on a time-to-time basis in each cotton year to ensure stability in

supply as well as prices to domestic mills.


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XXIII. Recommendations for improving marketing and branding of cotton: Grading of Kapas is

imperative for improving the marketing and branding of Kapas and lint. The grading system by

independent agency, better organised, regulated warehousing system, better contracting system with

risk management instruments, will raise the dynamics of Indian cotton to a greater level of

acceptance, fine image and remarkable branding. Creation of a Competing Crops Pricing Index could

be explored to ensure judicious allocation of resources in crop patterns. A structured mechanism for

promotion of cotton use could be developed to sustain domestic consumption on a long-term basis to

maintain the strength of the cotton economy. Pilot projects for marketing of lint by the farmers, instead

of kapas at present, could be considered. This might result in higher income to the farmers and

accelerate cotton production. The role and functions of government agencies involved in marketing of

cotton fibre can be looked into and their role towards inclusion of price stability can be reoriented.

XXIV. Recommendations towards value addition in the cotton value chain: Returns on cotton fibre can

be enhanced through backward integration of the cotton value chain. The cotton industry can adopt

the example of the sugar industry through such activities as de-linting and use of cotton stalks, which

present great opportunity with minimal investments. Further, realisation on seed can be improved

through more R&D on cotton oil and cotton seeds, especially because the governments across the

world are beginning to reduce green house gas emissions. For instance, the Australian Carbon

Pollution Reduction Scheme is likely to cover cotton to control the emissions from application of

nitrogen fertiliser, of carbon dioxide from biological decomposition, of methane from water logging,

and of other emissions from processing cotton etc. Therefore, a careful study is recommended todevise a strategy for countering carbon emissions and subsequently a Carbon Emission Reduction

Scheme can be framed.

XXV. Recommendations towards Risk Management: Effective risk management is crucial for protecting

the interest of all stakeholders in the Indian cotton economy. An efficient, integrated contracting

system covering spot transactions forward transactions and futures transactions would be required for

effective risk management.

XXVI. Recommendations towards drawing lessons from policies of other cotton producingcountries: A policy review of some of the cotton producing countries has been outlined in section 4.2

of this report. Lessons can be drawn from policies in these countries that are pertinent to India and

could be suitably adopted. For instance, the independent gradation certification system of total crop

existing in the US could be studied and a similar system can be developed after suitable

modifications.


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1.1. INDIAN C OTTON F IBRE S CENARIO

1.1.1. Cotton is one of the most important and widely cultivated cash crops across the world. Cotton

accounts for around 40% of the total global fibre production, making it one of the most important fibres

of the world. Cotton is also one of the most important commercial crops cultivated in India. In the raw

material consumption basket of the Indian textile industry, the proportion of cotton is around 59%.

Thus, it plays a major role in sustaining the livelihood of an estimated 5.8 mn cotton farmers and 40-

50 mn people engaged in related activities such as cotton processing and trade.

1.1.2. In the last few years, the area under cotton cultivation across the world has remained more or less

stagnant. However, the world cotton production has witnessed substantial increase on account ofsharp rise in cotton yield. World cotton yield increased from 613 kg/ha in 2000-01 (season beginning

August 1) to 797 kg/ha in 2007-08 (season beginning August 1). Nonetheless, the cotton yield

reduced to 767 kg/ha in 2008-09 (season beginning August 1).

1.1.3. According to ICAC data, India has the largest cotton cultivated area, which forms around 30% of the

global cotton area. Domestic cotton production increased substantially to 290.0 5 lakh bales in 2008-

09 6 from 30.6 lakh bales in 1950-51. Currently, India is the second-largest cotton producing country in

the world, after China and contributes about 21% to global cotton production. Cotton yield in India has

improved remarkably to around 524 kg/ha in 2008-09 from 278 kg lint/ha during 2000-01. However,

cotton productivity in India is still lower as compared with the world average yield of 767 kg/ha.

COTTON CULTIVATION IN INDIA

1.1.4. Though cotton is inherently a semi Xerophytes perennial crop, it is cultivated as an annual/ seasonal

crop. In India cotton is cultivated in three diverse agro-ecological zones, Northern zone, Central zoneand Southern zone. Northern zone comprises Punjab, Haryana and Rajasthan, the Central zone

includes Maharashtra, Madhya Pradesh and Gujarat and the Southern zone consists of Andhra

Pradesh, Karnataka and Tamil Nadu. Besides these nine states, cotton cultivation has gained

momentum in Orissa as well. Cotton is also cultivated in small areas of non-traditional states such as

Uttar Pradesh, West Bengal and Tripura.

5 Indian bale is of 170 kg6 Indian cotton year October to September (Years mentioned in section 1.1 to 1.5 refers to Indian cotton unless otherwisementioned).


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1.1.5. India is the only country that produces all four varieties of cultivated cotton, namely, Gossypium

arboreum and herbaceum (Asian cotton), G.barbadense (Egyptian cotton) and G.hirsutum (American

Upland cotton). India produces many cotton varieties and hybrids. Though the number of varieties in

cultivation exceeds 75, 98% of the production is contributed by about 25 varieties only. Gossypium,

hirsutum represents 90% of the hybrid cotton production in India and all the current BT cotton hybrids

are G.hirsutum. Currently, India produces the widest range of cotton capable of spinning for 6s to

120s counts of yarn. Around 35% of the total area under cotton is irrigated and the remaining 65% is

rain-fed

Cotton Acreage in India

1.1.6. Currently, India has the largest cotton cultivated area in the world. India accounts for around 30% ofthe 30.66 million hectares (ha) global cotton harvested area. The area under cotton cultivation in India

grew from around 56.5 lakh ha in 1950-51 to 94.14 lakh ha in 2007-08 and witnessed a marginal

decline at 94.06 lakh ha in 2008-09.

Exhibit 1.1.1: Cotton Acreage in India

Source: Cotton Advisory Board and D&B India

1.1.7. However, the rise in area under cotton cultivation over the years has not been on a sustained basis.

Various factors such as variability in monsoon, returns from competitive crops, have played a

significant role in influencing the cotton planting decision of farmers. For instance, during 2002-03, the

drought conditions experienced in India to certain extent restrained the growers to take up cultivation

of cotton; as a result, the area under cotton cultivation went down to 76.7 lakh ha from 87.3 lakh ha in

2001-02. Comparatively, the acreage under cotton increased by 5.4% (y-o-y) in 2006-07, primarily on

account of a good monsoon in major cotton growing parts of India and higher prices fetched by

farmers.


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Exhibit 1.1.2: State-wise cotton acreage (2008-09)

Source: Cotton Corporation of India and D&B India

1.1.8. Among the cotton-growing states in India, Maharashtra, Gujarat and Andhra Pradesh together

account for around 73% of area under cotton. Maharashtra has the highest area under cotton

cultivation followed by Gujarat and Andhra Pradesh. During 2008-09, the area under cotton cultivation

has declined compared with that of 2007-08 in almost all states except in Andhra Pradesh, Madhya

Pradesh and Tamil Nadu.

Cotton Production

1.1.9. Cotton production in India has more than doubled in a span of 7 years. Cotton production had

reached a peak of 307.0 lakh bales during 2007-08 as compared with 140.0 lakh bales in 2000-01,

but fell to 290.0 lakh bales in 2008-09. The gradual increase in cotton production over the years can

largely be attributed to the phenomenal increase in cotton yield. Introduction of BT cotton seeds has

played a catalytic role in enhancing cotton production in India. However, in 2002-03, when BT seeds

were introduced, cotton production dipped by 13.9% to 136.0 lakh bales due to the severe drought

that hit major cotton producing states such as Gujarat, Andhra Pradesh, and parts of Tamil Nadu.

Cotton production in Andhra Pradesh, Maharashtra and Gujarat declined by 26.2%, 24.1% and 6.2%

respectively, during 2002-03. However, since then, the commercial cultivation of BT seeds has

brought about a breakthrough in cotton production.


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Exhibit 1.1.3: Cotton fibre production


1.1.10. With suitable climatic conditions, better farm practices fostered by the government under TMC and

spread of hybrid and BT seeds, cotton production witnessed significant year-on-year growth of 31.6%

and 35.8% during 2003-04 and 2004-05, respectively. Good yield of cotton during 2006-07

encouraged farmers to take up large-scale sowing of cotton during 2007-08; as a result, the

production of cotton during this period increased by 12.5%. The area under BT cotton has also

increased remarkably in the past few years given that the variety offered 25-30% net return over other

conventional varieties. In 2007-08, area under BT cotton shot up to 63.3 lakh ha as compared with

34.8 lakh ha during 2006-07.

1.1.11. In 2008-09, cotton production declined to 290 lakh bales as compared with 307 lakh bales in 2007-08

because cotton yield fell to 524.13 kg/ha in 2008-09 from 554.39 kg/ha in the previous year. Uneven

rainfall coupled with high pest incidence could have affected the cotton productivity in 2008-09.

1.1.12. Indias cotton production primari ly consists of medium long and long staple varieties, which account

for around 77.2% of the total cotton fibre production in India. The production of medium long and long

staple varieties surged to 216.0 lakh bales in 2006-07 from 61.0 lakh bales in 2001-02.


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cotton cultivation in 2008-09 (at around 31.4 lakh ha), Gujarat had the highest contribution in cotton

production (at an estimated 90 lakh bales) followed by Maharashtra (at 62 lakh bales). Increased area

under cultivation and greater use of hybrid and genetically-modified seeds have aided the robust

growth in Cotton production in Gujarat. In Maharashtra, cotton production recorded robust increase of

38.9% and 24.0% in 2006-07 and 2007-08, respectively. The substantial increase in cotton production

in Maharashtra can in part be attributed to the initiatives of CITI-CDRA and the government to extend

integrated cotton farming programme and contract farming programme. In 2006 CITI-CDRA planned

to extend integrated cotton farming programme in 9,600 acres in Wardha district, Maharashtra, which

included better combination of crop, soil and pest management practices to increase and sustain

productivity as well as quality of cotton. The programme also included a market-supportive

mechanism for farmers to sell their produce. During 2007-08, the government took up contract

farming programme in 40,044 ha involving 12,000 farmers as compared with 33,279 ha during2006-07.

Box 1.1.1: Integrated cotton cultivation

The Indian government promoted an integrated cotton cultivation programme ( Contract

Farming ) with the twin objectives of a) benefitting the cotton farmers by way of making

available quality inputs such as seeds, pesticides etc for producing quality cotton, and b) to

enable the textile mills obtain desired quality of cotton. The corporate sector is also involved in

this programme not only in extension services but also in making available quality inputs suchas seeds, fertilisers to farmers to improve productivity and quality of Indian cotton.

Productivity of cotton

1.1.16. Cotton productivity in India has witnessed substantial improvement over the years. A confluence of

factors such as adoption of BT varieties, accelerated technology transfer to the farmers, efforts taken

by the government and other agencies have been instrumental in increasing cotton productivity in

India. The average cotton yield increased from 278 kg/ha in 2000-01 to peak at 554.39 kg/ha in 2007-

08 and slipped to 524.13 kg/ha in 2008-09. The drop in cotton yield in 2008-2009 could be attributed

to the uneven monsoon which led to a dry spell in some areas and excessive rains in other areas.

While significant progress has been made in the terms of improving cotton productivity, it is important

to note that the cotton yield in India at around 524 kg/ha is lower as compared with the world average

yield of 767 kg/ha.

1.1.17. There are huge variations in the cotton productivity levels of different states in India. The vast

difference in productivity levels can be gauged from the difference between the highest yield at 780

kg/ha recorded by Tamil Nadu and the lowest yield at 335 kg/ha recorded by Maharashtra. High yield

in Tamil Nadu can be attributed to increased use of better quality hybrid seeds, improved irrigation


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facilities and integrated pest control processes. The average yield in Gujarat and Andhra Pradesh is

higher as compared with the average yield in Punjab and Haryana.

Exhibit 1.1.6: State-wise yield of cotton fibre (kg/ha)

States 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Tamil Nadu 425 600 619 725 668 850 714 780

AndhraPradesh 454 418 557 469 527 630 687 644

Gujarat 328 317 516 651 794 733 786 650

Rajasthan 343 220 452 427 397 437 451 422

Punjab 262 284 389 551 610 672 619 565

Haryana 153 287 372 424 379 481 563 522

MadhyaPradesh 546 561 565 472 494 505 567 490

Karnataka 201 216 228 261 268 270 338 375

Others 142 321 333 250 215 239 315 405

Maharashtra 195 158 191 311 213 274 330 335


CONSUMPTION OF COTTON IN INDIA

1.1.18. Although the Indian textile industry consumes a diverse range of fibres and yarn, it is predominantly

cotton based. The ratio of the use of cotton to man-made fibres and filament yarns by the domestic

industry is 59:41 (FY09). Thus, cotton is one of the major raw materials for the Indian textile industry.

The proportion of cotton in the raw material consumption basket of the Indian textile industry is around

59%. Cotton consumption has increased significantly over the years given the rapidly expanding

domestic textile industry.

1.1.19. The consumption of cotton by the textile mills and small-scale spinning units has witnessed sustained

increase since 2001-02, except in 2002-03, when the total domestic consumption declined. Domestic

consumption of cotton fibre increased at a CAGR of 7.0% rising from 168.8 lakh bales in 2002-03 to

236.9 lakh bales during 2007-08, but fell to 229 lakh bales in 2008-09.

1.1.20. There has been a phenomenal growth in the Indian textile industry in the last 2 decades in terms of

installed spindles and yarn production. The pace of modernisation achieved by the Indian spinning


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1.1.22. Almost 83% of the cotton is consumed by the non-SSI mills and other 9% by the SSI mills. Non-mill

consumption of cotton has remained more or less stable over the last 4 years and accounted for

around 8%of the total domestic consumption.

COTTON MARKETING IN INDIA:

1.1.23. In India, cotton is primarily sold in the form of kapas (raw cotton or seed cotton). However, in other

leading cotton growing countries, kapas is processed wherein the fibre is extracted, and then the

lint (cotton fibre extracted from seed cotton) is sold as processed bales. The Agriculture Produce

Marketing Committee (APMC) is the primary market infrastructure in the country through which cotton

is marketed. The APMCs were set up by the Agricultural Produce Marketing Committee (Regulations)

Act in 1963 as a marketing platform for the sale of primary agriculture products to provide a regulated

market infrastructure for agriculture goods, which was absent earlier on. The main functions of these

markets or mandis is to regulate market practices such as weighing, process of sale, method of

grading, payment process etc. APMCs also provide facilities storage, boarding and lodging for buyers,

sellers etc. This committee charges 1% of the goods value as fees from the buyers. The marketing

committee, which runs the market, consists of both buyers and sellers who have the responsibility of

maintaining and developing the market yard for its users. In India, currently there are around 7,062

mandis that are functional.

1.1.24. The three marketing agencies engaged in cotton trade are:

Private sector comprising traders, owners of ginneries operating as individual business

proprietors, partnership firms and private limited companies

Public sector agencies like the Cotton Corporation of India (CCI)

Co-operative sector.

1.1.25. It has been estimated that approximately 80% of the marketed surplus of kapas and lint is handled by

the private marketing channels and the remaining 20% by the institutional marketing channels

including co-operatives and Cotton Corporation of India (CCI).


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Exhibit 1.1.9: Sale of cotton (In bales)

Group 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

NTC 46,818 70,980 90,986 1,51,042 99,469 1,22,538 1,02,427

STC/Cooperatives 58,950 51,588 60,106 1,42,597 55,351 76,901 47,190

Private 8,36,804 4,70,908 6,87,111 22,08,059 9,07,912 10,95,234 6,66,329

Total 9,42,572 5,93,476 8,38,203 25,01,698 10,62,732 12,94,673 8,15,946

Source: The Cotton Corporation of India Ltd and D&B India

1.1.26. Generally, the marketing of cotton (selling of cotton lint) begins with the grading of cotton-based on

various parameters such as fibre length, fibre strength etc. Grading of cotton not only helps in price

determination and reduction in marketing costs but also facilitates exports. Grade i s primarily

determined by colour, lustre, fineness, trash content, proportion of stained or immature kapas, feel

and moisture content.

Box 1.1.2: Generic determinants of cotton fibre/yarn quality

Fibre length : Genetic qualities of the cotton plant and certain environmental factors, such as

moisture content in the soil post flowering, determine the improvement in fibre length. Fibre lengthdetermines the strength of the yarn and enables faster spinning speed during processing at the

final stages of textile production.

Length uni form i ty and shor ter f ibre content : Uniform fibre in yarn makes spinning easier by

reducing breakage and assists faster spinning whereas short fibres can reduce strength of the

yarn and lead to more wastage. The length and uniformity of fibres determine the premium or

discount valuation of the yarn in the market.

Fibre s t rength : The thickening of the fibres begins within around 28 days of flowering. During this

period, fibre characteristics are influenced by temperature and stress as well as factors such asphysical and microbial damage. The parameter can also be controlled by ensuring optimum

potassium level in the soil. Fibre strength cotton helps make stronger yarn and better cloth at the

final stage of textile manufacturing.

Micronaire: This quality helps determine fibre maturity and fineness. Micronaire is determined by

fibre diameter and the formation of the secondary wall prior to the opening of the cotton boll. The

number of fibres in a cross section of yarn determines yarn fineness in cotton. The presence of

immature bolls in harvested cotton is one of the primary reasons for low micronaire in Indian

cotton. Moisture content in the cotton bolls also determines the micronaire of cotton.


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Source: D&B India

1.1.27. A lot reflects the kapas of a particular variety on a given day for selling purpose. Normally, a lot has a

code that indicates the particular variety of kapas. Approximately 4 kg samples of at least four

different places are taken for evaluation. Those samples are mainly evaluated based on 3 main

factors: grade, staple length and ginning percentage. According to the manual on good agricultural

marketing practices for cotton, major grade designations in Indian markets are Special, A, B, C, D and

X8. However, lack of uniformity in standards used by various agencies across the country is a major

drawback. Moreover, visual-tactile assessment is the predominant form of assessment, therebyleading to a poor price-quality linkage.

8 Please refer to http://agmarknet.nic.in/ManualCotton.pdf for further details

Colour g rade: Colour grade determines both yellowness and brightness in harvested cotton. The

main reasons for low colour grade are weathering of cotton bolls and the low levels of cellulose

production during development, which thereby affect the brightness of cotton. Environmental

factors primarily contribute to colour and brightness variations while microorganisms, boll rot and

insect damage cause discolouration.

Leaf grade: Leaf grade is a measurement of the amount of trash that accumulates usually during

mechanical harvesting of cotton. Burs, stems, weeds and leaf contribute to leaf grade. Excess leaf

grade requires more cleaning, which adversely affects the quality of cotton fibre.

Number of p ick ings : Number of pickings in seed cotton cultivation influences the quality of

cotton. Quality of cotton fibre decreases with subsequent picking. In India, there are sometimes up

to 6 pick per season. With increased number of pickings, especially by the fourth pick

There is an increase in the short fibre content of cotton

Micronaire and maturity deteriorate substantially

The levels of trash, micro-dust and fibre fragments in the fourth pick are higher than in the

first

The quality of yarns in terms of evenness, imperfections and tenacity deteriorate

substantially.
http://agmarknet.nic.in/ManualCotton.pdfhttp://agmarknet.nic.in/ManualCotton.pdfhttp://agmarknet.nic.in/ManualCotton.pdfhttp://agmarknet.nic.in/ManualCotton.pdf


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Exhibit 1.1.10: Cotton marketing system

Source: D&B India

1.1.28. After the grading is done, the lots are auctioned to the potential buyers. Each graded lot has a tag

assigned to it that denotes the ginning percentage and staple length of the lot for the inspection of

potential buyers. The two methods of kapas sale practised in India are the open auction system in

many states such as Gujarat, Rajasthan, Punjab and Haryana and the closed tender system in

Karnataka. In an open auction, market participants openly bid for lots in the market yard, which

belong to different commission agents, and the lot is sold to the highest bidder. In both these

practices, there are no limiting conditions or prices. In the closed tender system, cotton is hoarded in

the market yards where traders inspect these lots or samples of lots and quote their buying price in

sealed envelopes. The envelopes are opened up and the lot is sold to the trader with the highest

bidder.

Production

Retention by producersMarketable surplus

Private marketing Institutional

Marketing channels

Wholesale

Millers Ginning &

Retailers

Co-operative Ginning

Retailers Co-op./Fed./CCI

Exports

Consumers


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1.1.29. While significant improvements have been made in the area of cotton marketing through the initiatives

taken by the technology mission on cotton, certain problems still exist in the cotton marketing, such as

lack of uniform grading standards, high transportation costs, lack of adequate storage facilities etc.

Poor transaction practices at the market level, information asymmetry, lack of proper technology and

physical infrastructure are some other major challenges encountered in the process of cotton

marketing. The farmers and traders/ginners also face a problem of information failure and inadequate

institutional support.

COTTON EXPORT & IMPORT 9

1.1.30. With robust growth in cotton production in the last few years, India has become a net exporter of

cotton from being a net importer.

Export scenario:

1.1.31. Indian cotton consumption has increased at a rapid pace in the last few years but the growth in

consumption has not been commensurate with the growth in domestic cotton production, and

therefore, since 2003-04, there has been surplus production in India. As a result, India has emerged

as one of the top exporters of raw cotton in the world. Currently, India is the second-largest exporter

of cotton after the US. In order to boost cotton exports, the Indian government liberalised raw cotton

exports since July 2001, doing away with the system of allocation of cotton export quota in favour of

different agencies and traders. Over the years, Indias cotton export has been growing at an

impressive rate, except for FY05, when exports dipped. In FY08, India exported 88.5 lakh bales of

cotton.

Exhibit 1.1.11: Exports of cotton fibre (in lakh bales)


9 Export and Import data in this section pertains to export and import of Cotton including waste


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1.1.32. After emerging as the second largest cotton exporter since 2006- 07, Indias exports during 2008 -09

are estimated to have declined to 35 lakh bales. The substantial decline in cotton exports in 2008-09

could in part be attributed to the lowered export competitiveness of Indian cotton subsequent to a hike

of almost 30% to 50% (depending on quality) in the Minimum Support Price of cotton by the

Government. During 2008-09, the Government raised the minimum support price (MSP) of long staple

cotton and medium staple cotton to Rs 3,000 per quintal from Rs 2,030 per quintal to Rs 2,500 per

quintal from Rs 1,800 per quintal, respectively.

1.1.33. Despite strong growth over the years, one of the major issues faced by the Indian cotton exports is

contamination. In the latest (2007) survey by the International Federation of Textile Manufacturers,

the six most contaminated cottons tested were from India. Likely sources of contamination are hand-

picking, where foreign matter (such as polypropylene strands from picking bags) may be accidentally

introduced, and ginning, where seed coats may not be adequately removed, and wire or metal can

break off machinery and remain embedded within the fibres.

Exhibit 1.1.12: Country- wise share in Indias cotton exports (includ ing waste) (FY08)

Source: Office of Textile commissioner (Official Indian Textile Statistics 2007-08) and D&B India

1.1.34. Among the most important destinations for Indian cotton exports are China, Pakistan and Ban-

gladesh. In fa ct almost 76.10% of Indias cotton exported to these three countries. China commands

the highest share of 46.6% of Indias cotton fibre exports to the world. Export to China has increased

from 1.0 lakh bales in FY05 to 36.30 lakh bales in FY08.

Imports

1.1.35. Cotton has been imported into India under the Open General License (OGL) since April 1994. Till July

8, 2008, the custom duty of 10% and 4% special countervailing duty were levied on cotton imports.

However, from July 8, 2008, the Indian government abolished duty on cotton imports, thus enabling

the domestic textile mills to import cotton as per their requirements. Indias current import basket

consists of the extra long staple variety due to meagre domestic production of the same. Previously,

the domestic manufacturers used to import sizeable quantity of long staple cotton also, but it has


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shrunk in the last couple of years. There has been a noticeable decrease in the long staple variety

over the years.

1.1.36. Domestic cotton production coupled with price differences between the domestic and foreign cotton

have been key determinants of cotton imports in India. Import of cotton has reduced gradually from

around 25.3 lakh bales in 2001-02 to 6.4 lakh bales in 2007-08, barring a surge in 2004-05, when

exports increased to 12.2 lakh bales from 7.2 lakh bales in 2003-04. The imports of cotton increased

to 10 lakh bales during 2008-09.

1.1.37. Increasing domestic per capita income and refinement of consumer preference have resulted in an

increase of imports of the extra long variety during the last few years. India generally imports ELS

cotton from the US, Egypt, Sudan, West Africa and Commonwealth of Independent States (CIS)

countries.

Exhibit 1.1.13: Indias cotton Imports

25.3

17.7

7.2

12.2

5.0 5.56.4

10.0

0

5

10

15

20

25

30

2 0 0 1 - 0

2

2 0 0 2 - 0

3

2 0 0 3 - 0

4

2 0 0 4 - 0

5

2 0 0 5 - 0

6

2 0 0 6 - 0

7

2 0 0 7 - 0

8

2 0 0 8 - 0

9

L a

k h b a

l e s o

f 1 7 0 k g s


1.1.38. The US has the highest share of 31% and 39% in Indias cotton fibre imports from the world in volume

and value terms, respectively. Almost all imports come from the US and the other countries have a

meagre share in Indias imports. Egypt accounts for 20% (volume terms) of Indias cotton fibre imports

from the world. Within Africa, Egypt has the highest share in Indias cotton fibre imports followed by

Benin and Burkina Faso. Within Asia, Bangladesh has the highest share of 16% in Indias cotton fibre

imports in terms of quantity, however, in value terms, it accounts for a miniscule 1% share. This

implies that the cotton imported from Bangladesh is of very low quality.


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Exhibit 1.1.15: Annual average prices of kapas for important varieties

Prices in Rs per quintal

YEAR BENGAL DESI J-34 LRA H-4 S-6 DCH-32

2004-05 1689 1844 1835 2003 2037 2840

2005-06 1738 1999 -- 2002 2058 4111

2006-07 1871 2133 -- 2168 2280 3034

2007-08 2351 2523 -- 2483 2613 2827

2008-09 3051 2800 -- 2850 2850 --

Source: Cotton Corporation of India Ltd and D&B India

1.1.41. In line with market dynamics, the market price of cotton has largely varied according to the domestic

cotton production; for instance, cotton prices surged in 2003-04 consequent to a drop in production

during this period. In addition to the demand-supply dynamics, cotton-pricing mechanism in India is

also influenced by the minimum support price fixed by the government. In the past few years, the

MSP of cotton has been raised gradually to ensure minimum returns to the farmers. In fact, in 2008-

09, the government increased the MSP on various varieties of cotton by around 30-40% to provide

support to the farmers in the depressed market conditions. A dip in cotton production on account of

uneven monsoon coupled with lower demand due to global economic slowdown was expected to

adversely affect the cotton farmers.

Exhibit 1.1.16: Trend in prices of H-6 cotton variety

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

1 9 9 6 - 9

7

1 9 9 7 - 9

8

1 9 9 8 - 9

9

1 9 9 9 - 0

0

2 0 0 0 - 0

1

2 0 0 1 - 0

2

2 0 0 2 - 0

3

2 0 0 3 - 0

4

2 0 0 4 - 0

5

2 0 0 5 - 0

6

2 0 0 6 - 0

7

2 0 0 7 - 0

8

2 0 0 8 - 0

9

R S

. P e r Q u i n t a

l

MSP of Cotton - H4 Annual average market price of Kapas for H-4


1.1.42. Over the years, the market price of H-6 cotton variety has largely been above the MSP set by the

government. Thus, the MSP generally acts as a lower ceiling for cotton prices and prevents the price

of raw cotton from falling beyond a certain level.


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Cotton prices in India vis-a-vis other countries

1.1.43. It has been observed that the prices of Indian cotton have been around the world cotton prices. Therecent prices of India S-6 1-1/8 cotton, the cotlook A Index 10, Brazil Midd 1-3/32 and Pakistan Type

1503 have been considered for comparative analysis of cotton prices in some countries.

Exhibit 1.1.17: Recent trend in cotton prices in India, Brazil, Pakistan and World

72.3074.00

76.50

67.50

50

55

60

65

70

75

80

6 - A u g - 0

9

2 0 - A u g - 0

9

3 - S e p - 0

9

1 7 - S e p - 0

9

8 - O c t - 0

9

2 2 - O c

t - 0 9

5 - N o v - 0

9

1 9 - N o v - 0

9

U

S c e n

t s / l b

A Index India S-6 1-1/8 Brazil Midd 1-3/32 Pakistan Type 1503

Source: Various and D&B India

1.1.44. It can be observed from the above graph that prices of Indian cotton have been slightly higher as

compared with the cotlook A Index, which is an indicator of the world cotton prices. Cotton prices inPakistan have been substantially lower as compared with the Indian cotton prices, primarily due to

high contamination level in cotton produced in Pakistan. However, the price of cotton in Brazil is

higher as compared with the cotton prices in India.

Domestic cotton prices vis--vis exported cotton price

1.1.45. The landed price of Shankar-6 cotton in China has been considered for comparing the domestic

cotton prices vis--vis exported cotton prices. In October 2009, the landed price of 1-1/8" cotton C&F

China was around 68 cents/lb, which is equivalent to Rs 24,524 per candy 11 . After calculating the net

price of exported cotton, it was observed that the price of Shankar 6 in the domestic market compares

well with the price paid in the export market. The net selling price of exported cotton was Rs 23,289

per candy as compared with the domestic spot price of Shankar-6 cotton at Rs 23,300 per candy.

10 The COTLOOK A INDEX is intended to be representative of the level of offering prices on the international raw cottonmarket.

11 1 candy = 355.62 kg = 784.01 lb; Exchange rate = Rs. 46 per US Dollar


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Box 1.1.3: Net selling price of exported cotton

Net selling price of exported cotton = Landed price of cotton (Rs 24,524)

- Sea freight, port handling, inland road transportationexpenses (Rs 1,100)

- Interest on W.C. approx. for 30 days (Rs 227)

- Bank and misc charges (Rs 25)

+ Subsidy on exported cotton @1.5% (Rs 352)

- Commission to agent for exports @1% (Rs 235)

= Rs 23,289 per candy


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1.2. C OTTON TEXTILE V ALUE C HAIN 1.2.1. The textile and garments industry is a key traditional industry in India. The textile industry contributes

significantly to the economy in terms of industrial output, employment generation and the export

earnings of the country. It contributes around 4% to the GDP, 14% to the industrial production, and

17% to the countrys export earnings. The Indian textile industry provides direct employment to over

35 mn people. The textile sector is the second largest provider of employment after agriculture. India

is one of the few countries in the world to have a well-established, complete value chain in the T&G

industry. The Indian textile industry consumes a diverse range of fibres, but is predominantly cotton

based. Currently, the ratio of the use of cotton to man-made fibres and filament yarns by the domestic

industry is 59:41.

Exhibit 1.2.1: Cotton-to-Textile value chain in India

Source: D&B India

1.2.2. The Indian T&G industry is complex in structure, with the presence of numerous small-scale,

decentralised and fragmented units along with some large-sized integrated enterprises, also known

as composite mills. While the small-scale sector is largely unorganised and labour-intensive, large-

scale enterprises on the other hand are mostly organised and capital-intensive. In the last few years,

the industry has witnessed considerable expansion, integration and technological upgradation due to

potential growth opportunities in the export as well as domestic market.

Cotton Fibre Spinning Weaving-

Dyeing & Garment

Garments

Dyeing &

FabricYarnRaw cotton

Textile Products Cotton or blended)

Ginning &


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Exhibit 1.2.2: Increase in number of spinning mills (SSI and non-SSI)

1564 1566 1570 1608 1597

1135 1161 11731236 1219

0

200

400

600

800

1000

1200

14001600

1800

FY04 FY05 FY06 FY07 FY08

Spin ning mills (Non-SSI) No. Spin ning mills (SSI) No.

Source: Office of the Textile Commissioner and D&B India

1.2.3. Capacity installation and utilisation in the industry has also improved considerably over the past few

years. The domestic textile industry comprises of 1608 spinning mills and 200 composite mills, with an

installed capacity of 35.61 million spindles, 4,48,000 Open End Rotors and 69,000 looms in the

organised sector along with another 1219 small scale spinning units with 4.00 million spindles and

about 1,57,226 Rotors in the small scale decentralised sector. The capacity utilisation in the spinning

sector of the organised textile mill industry ranged between 80 to 93% while the capacity utilisation in

the weaving sector of the organised textile mill industry ranged between 41 to 63%.

Product Segments in the T&G Industry:

1.2.4. The T&G industry can be classified on the basis of product segments into four sub-heads yarn,

fabrics, made-ups, and garments. Since all these products are a part of the textile value chain, there

are several integrated players in the industry, who manufacture two or more of these products.

Yarn:

1.2.5. Yarn is a long continuous length of interlocked fibre, suitable for use in the production of textiles,sewing, crocheting, knitting, weaving, embroidery, and rope-making. It is usually spun from natural or

man-made fibres or both. Thus, based on the raw material used, yarn could take a variety of forms

cotton yarn, silk yarn, woollen yarn, polyester yarn, acrylic yarn, viscose yarn, or blended yarn (when

more than one type of fibre is used to make yarn). Indias strengt h lies in the production of cotton

yarn, which accounts for around 74% of total spun yarn production in India. The production of cotton

yarn in India has recorded an annual average growth rate of around 6.5% between FY05-FY09. While

there has been a sustained improvement in cotton yarn production since FY05, the yarn production

witnessed marginal decline of 1.69% in the FY09 as compared to an increase of 4.42% in FY08


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Exhibit 1.2.3: Trend in production of cotton yarn in India (Million kg)

150017001900210023002500270029003100

F Y 0 1

F Y 0 2

F Y 0 3

F Y 0 4

F Y 0 5

F Y 0 6

F Y 0 7

F Y 0 8

F Y 0 9 ( P )

M n K g


1.2.6. India is net exporter of cotton yarn. In 2007-08, India registered 8.3% growth and 9.9% de-growth inexports and imports respectively. The dismantling of Multi fibre Agreement (MFA) in 2005 provided

boost to Indias yarn exports.

Fabrics:

1.2.7. Fabrics are items made of thread or yarn, formed by weaving or knitting. Fabrics are generally used

for making finished textiles garments and made-ups. Based on the type of yarn used in

weaving/knitting, fabrics can be of different types cotton, silk, woollen, synthetic, or blended.

Fabrics are available in different designs and patterns, usually prepared through dyeing, colouring, orprinting.

1.2.8. India manufactures a large variety of fabrics, with a range of finishe s, width, and designs. Indias cloth

production is mostly in the form of cotton or blended cloth. However, non-cotton cloth has gained

prominence during the last 15 years, and currently accounts for about 37.9% of countrys total fabric

production. At the time of independence, the mill sector was the main producer of cloth in India.

However, the growth of the powerloom and handloom sectors, aided through government incentives,

has led to a steep decline in the share of the mill sector in Indias overall clo th production. The share

of mill sector in cloth production has gone down from over 70.0% in the 1950s to less than 6.0% in

FY97 and to a mere 3.3%, currently. On the other hand, fabric production in powerloom and

handloom sectors has grown considerably; c urrently, these account for about 74.4% of Indias total

cloth production. The production of knitted fabrics in the hosiery segment has also increased in recent

times; currently, hosiery accounts for 22% of total cloth production in India.


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Increase cotton productivity and upgrade its quality to international standards, through

effective implementation of the Technology Mission on Cotton

Though cotton is expected to continue to be the dominant fibre yet special attention will begiven to bring the cotton to non-cotton fibres ratio closer to international trends

Full fibre flexibility between cotton and man-made fibres will be encouraged

Encourage the spinning sector to continue modernisation

Liberalise and encourage export of cotton yarn

1.3.4. The objectives, measures introduced by the Government in National Textile Policy in 2000 and the

impacts can be summarised as follows.

Exhibit 1.3.1: National Textile Policy, 2000 A snapshot

Objectives Measures introduced Impact/progress

Increasing output De-reservation of garments and knittingfrom SSI

Growth in hosiery segment

TechnologicalUp-gradation

Implementation of TUFS, covering allmanufacturing segments of the industry

Slow progress initially, butpicked up pace in recent times major capacity expansions

underway

Productivityenhancement

Qualityimprovement

Strengthening rawmaterial base

Implementation of Technology Mission onCotton and Technology Mission on Jute

Reviving textile research associations(TRAs) to focus research on industryneeds

Strengthening of raw materialbase for the industry

Substantial increase in cottonproduction, though no majorprogress in jute production

Infrastructuredevelopment

Encouraging private sector to set upworld-class, environment-friendly,integrated textile complexes and textileprocessing units

40 textiles park projects havebeen approved by the Ministryof Textiles.

Productdiversification

Strengthen and encourage the handloomindustry to produce value-added items

No major progress in terms ofproduct diversification

Export expansion Marketing assistance to the industry toforge joint ventures to secure globalmarkets

Increased interaction betweenIndian textile industry andforeign counterparts throughparticipation in foreignexhibitions and delegate visits


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Exhibit 1.3.1: National Textile Policy, 2000 A snapshot

Objectives Measures introduced Impact/progress

Employmentgeneration

Setting up a venture capital fund fortapping knowledge-based entrepreneursof the industry

Re-design and revamp schemes andprogrammes initiated in the handloom,sericulture, handicrafts, and jute sectorsto ensure better returns for those from thedisadvantaged categories

Human resourcedevelopment

Strengthening HRD institutions, includingNIFT, on innovative lines

Development of skilled labour inthe industry

Source: Ministry of Textiles (Government of India), D&B India

Technology Upgradation Fund Scheme (TUFS)

1.3.5. The Indian government launched TUFS in April 1999 with a view to modernise the textile industry and

to increase its competitiveness in domestic as well as international markets. Under the scheme, textile

firms across segments (spinning, cotton ginning and pressing, silk reeling and twisting, wool scouring

and combing, synthetic filament yarn, texturising, crimping and twisting, manufacturing of viscose

filament yarn (VFY) and viscose staple fibre (VSF), weaving/knitting, garment/made-upmanufacturing, processing units etc) could avail of loans for technological upgradation at lower

interest rates. Some of the incentives provided under this scheme included:

Interest reimbursement at the rate of 5% of the normal interest rate charged by the lending

agency or rupee term loan, or

Coverage of 5% exchange fluctuation (interest and repayment) from the base rate on foreign

currency loan, or

Credit-linked capital subsidy of 15% for SSI textile and jute sector, or

Credit-linked capital subsidy of 20% for the powerloom sector, or

Interest reimbursement at the rate of 5% plus 10% capital subsidy for specified processing

machinery.

1.3.6. This scheme facilitated more investment in the sector, mostly from large players. The scheme has

been so popular that the industry asked for an extension of the scheme, which was originally set to

expire by March 2007. The government has now extended this scheme for another 5 years, i.e. until

FY12. The benefits of Modified TUFS are available for all sectors of textile industry as it was earlier

with certain modifications. The modified structure of TUFS lays emphasis on better technologyadoption, additional capacity building and provides for a higher level of assistance to segments that


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have huge growth potential like garmenting, technical textiles and processing. Some of the major

highlights of the modified TUF Scheme have been discussed in the below Box 12.

12 For further details please refer tohttp://www.txcindia.com/html/TUFS%20Tex%20Jute%20industry_sub.htm

Box 1.3.1: Highlights of Modified TUF Scheme:

The scheme continues to provide 5 percentage points reimbursement on the interestcharged by the lending agency except for the spinning machinery for which it will be 4percentage points.

The scheme continues to provide cover for foreign exchange rate fluctuation not exceeding5% for the spinning machinery for which it will be 4%.

The powerlooms units are now provided with an additional option to avail of 20% MarginMoney subsidy under TUFS in lieu of 5% interest reimbursement on investment in TUFcompatible specified machinery subject to a capital ceiling of Rs. 200 lakh and ceiling onmargin money subsidy Rs.20 lakh. A minimum of 15% equity contribution frombeneficiaries will be ensured.

The SSI textile and Jute sector are now provide 15% Margin Money subsidy in lieu of 5%interest reimbursement on investment in TUF compatible specified machinery subject to acapital ceiling of Rs. 200 lakh and ceiling on margin money subsidy Rs.15 lakh. A minimumof 15% equity contribution from beneficiaries will be ensured.

5% interest reimbursement plus 10% capital subsidy for specified processing machinery iscontinued.

The Scheme will now provide 5% interest reimbursement plus 10% capital subsidy forspecified machinery required in manufacture of technical textiles and garmentingmachineries.

Interest subsidy/capital subsidy/Margin Money subsidy will now be provided on the basicvalue of the machineries and the tax component would be excluded for the purpose ofvaluation in view of the decision for non-subsidising the taxes.

25% capital subsidy on purchase of the new machinery and equipments for the pre-loom &

post-loom operations, handlooms/upgradation of handlooms and testing & Quality Controlequipments, for handloom production units. The entire range of imported second hand machinery, which have been permitted in the

earlier Scheme, will now be ineligible under the modified Scheme for any benefit exceptautomatic shuttleless looms with the value cap of Rs. 8.00 lakh per machine and 10 yearsvintage and with a residual life of minimum 10 years.

Other investments such as energy saving devices, effluent treatment plant, in-house R&D,IT including ERP, TQM including adoption of ISO/BIS standards, CPP etc (including non-conventional sources) of the earlier Scheme will now be eligible for benefits of the schemeonly up to 25% of the cost of machinery.

For a specific thrust to garmenting, machineries for CAD, CAM and design studios andlikes will be included in the separate heading of the guidelines of the scheme with afinancial cap to be determined by the Inter Ministerial Steering Committee (IMSC) under theChairmanship of Secretary (Textiles).

Investments like land, factory building, pre-operative expenses and margin money forworking capital will now be ineligible for benefit of reimbursement under the scheme exceptmeant for apparel sector and handloom with existing 50% cap. In case apparel unit isengaged in other activity, the eligible investment under this head will only be related toplant & machinery eligible for manufacturing of apparel.

Source: Ministry of Textile
http://www.txcindia.com/html/TUFS%20Tex%20Jute%20industry_sub.htmhttp://www.txcindia.com/html/TUFS%20Tex%20Jute%20industry_sub.htmhttp://www.txcindia.com/html/TUFS%20Tex%20Jute%20industry_sub.htm


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1.3.7. The progress in TUFS implementation was extremely slow at the time of inception but has gradually

improved. By FY10 (until June), 26087 applications have been received under the scheme, of which

25893 applications have been sanctioned, of which 25777 have been disbursed. Initially, the industry

considered the interest subsidy to be very low to encourage speedy investments in modern machinery

but with the introduction of credit-linked capital subsidy of 20% for the powerloom sector, investments

have gradually picked up.

Exhibit 1.3.2: Progress of TUFS

Year

Received Sanctioned Disbursed

No. ofappl icat ions

Cos t ofpro ject

(Rs bn)


Am oun t(Rs bn)


Am oun t(Rs bn)

FY00 407 57.71 309 24.21 179 7.46

FY01 719 62.96 616 20.9 494 18.63

FY02 472 19 444 6.3 401 8.04

FY03 494 18.35 456 8.39 411 9.31

FY04 867 33.56 884 13.41 814 8.56

FY05 986 79.41 986 29.9 801 17.57

FY06 1086 161.94 1,078 67.76 993 39.62

FY07 12336 610.63 12,589 290.73 13168 266.05

FY08 2408 212.54 2,260 80.58 2207 68.54

FY09 (P)* 6113 565.42 6,072 240.07 6111 218.26

FY10 (tillJune 2009) 199 1.17 199 0.82 198 0.8

Total 26,087 182270 25,893 783.07 25,777 662.84

* As the cut off date for the cases sanctioned prior to on or before 31st March, 2007 for claiming subsidy underTUFS has been fixed till the quarter ending Dec., 2008, the data up to Dec., 2008 covers units whose project wassanctioned prior to 31st March, 2007

Source: Ministry of Textiles and D&B India


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Technology Mission on Cotton (TMC) 2000

1.3.8. TMC was launched in February 2000 with the primary objective of improving production, productivityand quality of cotton in India. The TMC was structured into four mini missions, which were

implemented by different nodal agencies.

Exhibit 1.3.3: Objectives of TMC

Mini Mission Objective Nodal Agency

I Cotton Research and TechnologygenerationIndian Council of AgricultureResearch

II Transfer of Technology andDevelopment Ministry of Agriculture

III Improvement of Marketinginfrastructure Ministry of Textiles

IV Modernisation / Upgradation of G & PFactories Ministry of Textiles

Source: Office of Textile Commissioner and D&B India

1.3.9.Objectives of TMC:

Mini Mission I

o Develop short duration, high yielding, disease and pest resistant varieties and hybrids

of cotton with appropriate fibre parameters to meet the need of the textile industry

o Develop integrated water and nutrient management practices for cotton and cotton

based cropping system

o Develop and validate IPM technology for different cotton growing areas of India to

improve yield and reduce the cost of cultivation, thereby ensure better net return to

the cotton growers

Mini Mission II

o Technology transfer through demonstration and training

o Supply of delinted certified seed by setting up of delinting units

o Accelerate IPM activities

o Providing adequate and timely information input to the farmers periodically


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Mini Mission III

o Improve marketing infrastructure by setting up new market yards and activating as

well as improving existing market yards

Mini Mission IV

o Modernise and technologically upgrade existing ginning and pressing factories so as

to improve the processing of cotton

1.3.10. The following table describes the Technology Mission on Cotton (TMC ) in brief.

Table 8: Technology Mission on Cotton (TMC)

Exhibit 1.3.4: Progress of TMC

Mission Focus Output

Mini

Mission IResearch Development of new genotypes to improve qualityof cotton and cotton yarn in the country

Mini

Mission II

Technologydissemination programsfor farmers

Extension services and distribution of improvedseed varieties

MiniMission III

Improvements in marketinfrastructure

161 Market yards (out of sanctioned 250 marketyards) were modernised to avoid cottoncontamination

Mini

Mission IV

Modernisation of the

ginning and pressingsector

829 ginning and pressing factories (out of targeted993 projects) were modernised

Source: Ministry of Textiles and D&B India

1.3.11. Under Mini Mission III, development of 250 market yards has been sanctioned and 161 have been

completed by September 2008. The total cost of the sanctioned project is Rs 4.9 billion out of which

share of TMC is Rs 2.5 billion. Under Mini Mission IV, modernisation of 993 Ginning and Pressing

(G&P) factories have been sanctioned and 829 have been completed. The total cost of the sanctioned

projects is Rs 14.5 billion out of which the share of TMC is Rs 2.3 billion. Fund allocated to TMC (Mini

Mission III & IV) during FY09 was Rs 500 million and is the same during FY10. The Government, by

the end of the Eleventh Plan, envisages increasing the yield of cotton to 700 kg/ha. The Government

also targets to increase the production of extra long staple (ELS) cotton to reduce the gap between

demand and indigenous supply of ELS cotton.


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Duty Structure

1.3.12. The Government had increased customs duty on cotton fibre exports from 5% in FY02 to 10% inFY03. But in FY09, the Government has done away with the customs duty on cotton. The customs

duty on cotton yarn also has gradually decreased from 20% in FY05 to 15% in FY06 and further to

10% in FY08. The duty on cotton fabric has also decreased substantially over the years. In addition,

the Government allowed 5% export incentive for raw cottons.

Exhibit 1.3.5: Customs duty on different categories of cotton textiles (% advalorem)

ITEMS FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10

Cotton 5 10 10 10 10 10 10 Nil Nil

Cotton Yarn 20 20 20 20 15 12.5 10 10 10

Cottonfabrics **30/35* ** 30 ** 20 ** 20 **15 **12.5 **10 **10 **10

**Attracts advalorem rate or specific rate whichever is higher basis


1.3.13. Cotton production does not attract excise duty. However, excise duty is applicable on cotton yarn and

cotton fabric which have been reduced substantially.

Exhibit 1.3.6: Excise duty on different categories of cotton textiles (% advalorem)

ITEMS FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10

Cotton Nil Nil Nil Nil Nil Nil Nil Nil Nil

Cotton Yarn 9.2 9.2 9.2 *4.08 *4.08 *4.08 * 4.12 # *4.12/Nil #*4.12/Nil

Cotton

Fabrics16 12 10 *4.08 *4.08 *4.08 * 4.12 # *4.12/Nil #

*4.12/Nil

*Zero duty without CENVAT facility

#The three major advalorem rates of CENVAT-14%, 12% and 8% applicable to non-petroleum products havebeen reduced by 4% each, i.e., to 10%, 8% and 4% respectively and CENVAT on cotton textiles and textilearticles has been reduced from 4% to Nil as a measure to stimulate the economy in the context of globaleconomic recession by Government of India on 7th December 2008. However, in Budget 2009-10, the optionalCENVAT on Pure cotton textiles restored at 4% and for other textile excluding Man-made filament yarns andfibres at 8%



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09 from 32.84 million ha in 2007-08. During 2008-09, cotton yield also registered a decline compared

to the previous year primarily on account of unfavourable weather conditions across the world. After

witnessing sustained improvement since 2000-01, the world cotton yield has moderated to 767kg/ha

in 2008-09 from a peak of 797 kg/ha in 2007-08. World cotton yield has increased by around 17.8%

from 2003-04 to 2008-09 mainly due to extensive use of BT cotton varieties across the globe.

Genetically modified (GM) seeds occupied around 48% of total harvested area globally in 2008-09.

Exhibit 1.4.2: World Cotton harvest area and production yield (Season beginning August 1)

Source: ICAC, D&B India

1.4.4. During 2008-09, almost all the major cotton producing countries witnessed a decline (y-o-y) in

production of cotton except Pakistan and Australia. China, India, USA, Pakistan, Brazil and

Uzbekistan accounted for almost 85% of the world cotton production in 2008-09.

1.4.5. With the global economy traversing through turbulent times, cotton consumption declined

substantially by 12.75% during 2008-09. World cotton mill consumption diminished due to a drop in

end-use consumption of cotton products subsequent to a slow-down in world economy, loss of

competitiveness of cotton prices against polyester prices, and tightening credit conditions for textile

mills. The slump in the world consumption of cotton could be largely attributed to substantial decline in

domestic consumption of cotton in China, which is the largest consumer of cotton in the world. In fact,

the chinas cotton consumpti on declined by around 17% in 2008-09. During 2008-09, cotton

consumption declined in almost all the major cotton consumers in the world.


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Exhibit 1.4.3: World domestic consumption (Season beginning August 1)

Source: ICAC and D&B India

1.4.6. Even world cotton imports and exports declined during 2008-09. World exports declined by almost

25.36% in 2008-09 primarily backed by reduction in exports from major exporting countries like US,

India and Uzbekistan. With imports from some of the major importing countries like China, Turkey and

Pakistan witnessing substantial decline, World cotton imports also declined by around 25.73% during

2008-09.

Exhibit 1.4.4: Trend in World Cotton Export & Import


1.4.7. USA maintained its first position as a largest exporter of cotton in 2008-09 accounting for as much as

44.39% of the world cotton exports. India, however, could not secure its place as second largest

exporter after USA in 2008-09 on account of significant decline of 73.86% in cotton exports from

India. Uzbekistan has emerged as the second largest cotton exporters in the World during 2008-09.


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Exhibit 1.4.5: Country-wise Share in Cotton Exports


1.4.8. China continued to retain its position as the leading importer of cotton in 2008-09, accounting for

almost 23% of the world s cotton export. During 2008 -09, Bangladesh was the second largest

importer of cotton having a share of 10% in world import.

Exhibit 1.4.6: Country-wise Share in Cotton Imports


A BRIEF REVIEW OF MAJOR COTTON PRODUCING COUNTRIES

United States (US)

1.4.9. The United States (US) is the worlds largest exporter of agricultural products. Any change in US

agricultural policy markedly influences the worlds agricultural markets. US is the largest exporter of

cotton across the world. US primarily exports US upland and US Pima cotton varieties to countries

like China, India, Pakistan, etc. US domestic consumption cotton showed a downward trend since

2004-05 due to increased competition from price-competitive foreign imported textile products,


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Exhibit 1.4.8: United States Farm Bill 2008

Major Policy

InitiativesObjectives Measures Current Status

9 months to protectf

cotton gov data

Documents