SECTION I: COTTON FIBRE

TABLE 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 ........................ 91
OVERVIEW ...................................................................................................................................... 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 FIBRE
POLICY .......................................................................................................................................... 106


24

SUMMARY COTTON FIBRE
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) to
797 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 FIBRE SCENARIO: 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 kg
2
Indian cotton year October to September
3
2008-09 refers to Cotton year August 2008-July 2009 (year mentioned in this section refer to cotton year from August to July


25
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 FIBRE SCENARIO: 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 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. 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


26
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 surplus
in 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, cotton 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 the
textile 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 is
assumed as 6001 mn kg. The investment estimate therefore considers both MMF as well as cotton segments.


27

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 SUB-GROUP ON COTTON FIBRE
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.


28
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 objectives 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


29
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 of
cotton 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 water
harvesting, 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 improve 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 area
basis, 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 implemented
vigorously on cluster basis.


30
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.


31
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 to
devise 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 producing
countries: 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.



32
1.1. INDIAN COTTON FIBRE SCENARIO
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 of
sharp 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 zone
and 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 kg
6
Indian cotton year October to September (Years mentioned in section 1.1 to 1.5 refers to Indian cotton unless otherwise
mentioned).


33
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% of
the 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.



34
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.






35
Exhibit 1.1.3: Cotton fibre production

Source: Cotton Corporation of India and D&B India
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 primarily 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.






36
Exhibit 1.1.4: Staple-wise cotton production (in lakh bales)
7

0.0
50.0
100.0
150.0
200.0
250.0
300.0
01-02 02-03 03-04 04-05 05-06 06-07 07-08
Short (below 20.0 mm)
Medium(20.5 to 25.5 mm)
Medium Long (26.0 to 27.5 mm) & Long (28.0 to 33.5 mm)
Extra Long (34 mm & above)

Source: Cotton Corporation of India and D&B India
1.1.13. Extra long staple variety had a marginal share of 2.1% in the total production during 2006-07.
Moreover, production of extra long staple variety has remained almost constant over the time period
under consideration. Further, the production of short staple cotton has been witnessing sustained fall
in the last few years as its production has declined from around 9.5 lakh bales in 2001-02 to 6.0 lakh
bales in 2006-07. Short staple cotton constituted around 1.4% of the total cotton production in
2006-07.
Exhibit 1.1.5: State-wise share in cotton fibre production (2008-09)
Gujarat, 32%
Maharashtra,
22%
Andhra
Pradesh, 19%
Madhya
Pradesh, 7%
Punjab, 6%
Haryana, 5%
Karnataka, 3%
Rajasthan, 3%
Tamil
Nadu, 2%
Others, 1%

Source: Cotton Corporation of India and D&B India
1.1.14. As of 2008-09, the central states of Gujarat, Maharashtra and Madhya Pradesh had the highest
contribution of 61% in the domestic cotton production while the southern states such as Andhra
Pradesh, Karnataka and Tamil Nadu contributed 24% and the northern states such as Punjab,
Haryana and Rajasthan contributed to around 14% of cotton production.
1.1.15. Cotton grown in different states have varying staple length, strength and grade depending on the
climate and farm and pest management practices. Although Maharashtra had the highest area under

7
Data for 2007-08 are estimates


37
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 during
2006-07.
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 such
as 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


38
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
Andhra
Pradesh
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
Madhya
Pradesh
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
Source: Cotton Corporation of India and D&B India

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


39
industry received a fillip after the launch of "Technology Up-gradation Fund" by the Indian government
in April 1999. The robust growth of spinning industry and its modernisation has led to sustained
growth in cotton consumption.
Exhibit 1.1.7: Trend of domestic cotton consumption

Source: Cotton Corporation of India and D&B India
1.1.21. Cotton consumption has witnessed sustained increase since 2003-04 onwards as a result of growing
demand for Indian textiles, which led to considerable expansion and modernisation of the textile mills.
In 2007-08, domestic consumption merely grew by around 2% over that in 2006-07 due to
consistently high cotton prices mainly because of speculative funds coming into play, and due to
large-scale exports of raw cotton. Exports of cotton stood at around 88.5 lakh bales during 2007-08.
Also, appreciation in the rupee for some months during the cotton year 2007-08 led to low textile
exports that affected the domestic mill consumption of cotton. In the cotton year 2008-09, domestic
consumption of cotton declined by 6.9 lakh bales to an estimated 229 lakh bales. The drop in mill
consumption was a result of the global slowdown that affected domestic as well as export demand for
textiles. Consumption also declined due to a steep hike in minimum support prices of different
varieties of cotton, which resulted in high procurement costs of cotton for the mills.
Exhibit 1.1.8: Segment-wise consumption of cotton
Segment 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
Mill
consumption
147.0 142.4 150.4 164.0 180.0 194.9 195.7 190.0
Small mill
consumption
11.7 11.6 13.0 16.6 19.0 21.3 22.1 20.0
Non-mill
consumption
13.1 14.8 13.7 14.5 20.0 15.9 19.1 19.0
Source: Cotton Corporation of India, Office of the Textile Commissioner and D&B India


40
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).






41
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 is 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 length
determines the strength of the yarn and enables faster spinning speed during processing at the
final stages of textile production.
Length uniformity and shorter fibre 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 strength: 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 as
physical 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.


42

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
X
8
. 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, thereby
leading to a poor price-quality linkage.


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


43
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 producers
1 2 %
Marketable surplus
Private marketing
Channels
Village Traders/
Merchants
Commission Agent
Institutional
Marketing channels
CCI, Co-operative
Societies/Federation
State Agencies
Wholesale
Merchants
Millers Ginning &
Pressing Mills
Retailers
Co-operative Ginning
& Pressing Mills
Retailers Co-op./Fed./
CCI
Exports
Consumers


44
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)

Source: Cotton Advisory Board and D&B India

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


45
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 (including 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 fact 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


46
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
5.5
6.4
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

Source: Cotton Advisory Board and D&B India
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.


47
Exhibit 1.1.14: Country-wise share in Indias cotton imports (including waste) (FY08)


Source: Office of the Textile Commissioner (Official Indian Textile Statistics 2007-08) and D&B India
1.1.39. Indias dependence on cotton imports from Egypt and the US may be a matter of concern for the
former, considering the development in the textile industry of Egypt. In future, there can a rise in
domestic consumption of Egyptian cotton, which will imply lesser exports to India.

TREND IN INDIAN COTTON PRICES
1.1.40. Prices of cotton across countries and varieties differ on account of a number of factors. Within a
country, cotton prices during a particular year vary depending on the variety grown and the qualit y of
the harvested cotton.
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
1996-97 1168 1770 1786 1905 2010 2316
1997-98 1773 2101 2095 2186 2278 2973
1998-99 1883 2080 2037 2135 2141 2532
1999-00 1443 1836 1835 1909 2067 2732
2000-01 1438 2068 2103 2207 2310 2784
2001-02 1833 1828 1750 1891 1901 --
2002-03 1875 2218 2110 2215 2323 2927
2003-04 1962 2591 2470 2533 2632 3152


48
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

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


49
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. The
recent 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

72.30
74.00
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 in
Pakistan 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 cotton
market.

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



50


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 transportation
expenses (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



51
1.2. COTTON TEXTILE VALUE CHAIN
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
production
Spinning
Weaving-
Knitting
Dyeing &
Finishing
Garment
confection
Garments
Dyeing &
Finishing
Fabric Yarn
Raw cotton
fibre
Textile Products (Cotton or blended)
Ginning &
Pressing


52
Exhibit 1.2.2: Increase in number of spinning mills (SSI and non-SSI)
1564 1566 1570
1608 1597
1135
1161 1173
1236
1219
0
200
400
600
800
1000
1200
1400
1600
1800
FY04 FY05 FY06 FY07 FY08
Spinning mills (Non-SSI) No. Spinning 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 strength 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



53
Exhibit 1.2.3: Trend in production of cotton yarn in India (Million kg)
1500
1700
1900
2100
2300
2500
2700
2900
3100
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

Source: Office of the Textile Commissioner and D&B India
1.2.6. India is net exporter of cotton yarn. In 2007-08, India registered 8.3% growth and 9.9% de-growth in
exports 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, or
printing.
1.2.8. India manufactures a large variety of fabrics, with a range of finishes, 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 cloth 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; currently, 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.


54
Exhibit 1.2.4: Production of Cotton Cloth
10000
14000
18000
22000
26000
30000
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
(
P
)
M
n

S
q

M
t
r
s

Source: Office of Textile Commissioner, D&B India
1.2.9. Cotton Cloth production in India has witnessed sustained increase since 2003-04 before witnessing a
marginal decline in 2008-09. While the production in hosiery and mill sectors experienced modest
increase, production in power looms and handlooms declined compared to the previous year. The
decline in cotton textile during 2008-09 could be attributed to a confluence of factors like higher price
of cotton, high interest rates and slowdown in demand in domestic as well as international markets.
Made-ups and Garments:
1.2.10. Made-ups are non-wearable finished textiles such as bed linen, table linen, canvas, bags, blankets,
carpets, mattresses, cushions, fish nets, terry towels, furnishing materials etc. Made-ups can also be
classified on the basis of raw material type cotton made-ups, non-cotton made-ups, and blended
made-ups. Majority of Made-ups manufactured in India are largely cotton-based. Bed sheets
constitute the largest variety of made-ups in India, followed by canvases and other made-ups. Other
types of made-ups include curtains, furnishings, towels and towelling, mosquito nets, filter, lint, and
bed ticking. Besides made-ups, fabric can be converted into readymade garments, which are
wearable and need not be tailored. Garments are generally manufactured in the following stages
designing, cutting fabrics, sewing cut fabrics, and finishing the garment (trimming, checking, and
ironing). Readymade garments are a relatively new concept in Indias manufacturing history as
Indians traditionally had garments stitched from local tailors.


55
1.3. POLICY INITIATIVES IN THE COTTON FIBRE
AND TEXTILE SEGMENT
1.3.1. Cotton production in India received a fillip with the development of improved varieties and hybrids in
the different staple length groups and thorough support by the Government, in addition to
technological development and multiple other factors as summarised below:
Extensive research and development, technology transfer and adoption of scientific and
agronomic practices by the farmers
Increase in area under irrigation
Improvement in marketing infrastructure
Launch of Technology Mission on Cotton (TMC) in February 2000
Sustained awareness programmes by NGOs like Cotton Association of Indias (CAIs), Cotton
and Allied Products Research Foundation (COTAAP), Cotton Development and Research
Association (CDRA) under Confederation of Indian Textile Industry (CITI), etc. to adopt best
management practices in modern agronomic methods and crop management techniques
Spread of hybrid cotton and commercial cultivation of BT cotton from 2002, resulting in higher
yield as well as economic benefits to farmers
Distribution of quality inputs, village adoption programmes and support to R&D by the
Government
Increased application of integrated pest management (IPM) technology and effective check
on pest and disease infestation
Major Government policies and initiatives
1.3.2. Government policies and initiatives have been providing the requisite boost to domestic cotton
production, processing as well as consumption.
National Textile Policy (NTP) 2000
1.3.3. The NTP (2000) aimed at building a strong and vibrant textile industry competent of producing quality
cloth at an acceptable price, increasingly contributing to employment provision and economic growth
and competing with for an increased share of global market. For development of cotton sector the
policy endeavoured to


56
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 be
given 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 knitting
from SSI
Growth in hosiery segment
Technological
Up-gradation
Implementation of TUFS, covering all
manufacturing segments of the industry
Slow progress initially, but
picked up pace in recent times
major capacity expansions
underway
Productivity
enhancement

Quality
improvement

Strengthening raw
material base
Implementation of Technology Mission on
Cotton and Technology Mission on Jute

Reviving textile research associations
(TRAs) to focus research on industry
needs
Strengthening of raw material
base for the industry

Substantial increase in cotton
production, though no major
progress in jute production
Infrastructure
development
Encouraging private sector to set up
world-class, environment-friendly,
integrated textile complexes and textile
processing units
40 textiles park projects have
been approved by the Ministry
of Textiles.
Product
diversification
Strengthen and encourage the handloom
industry to produce value-added items
No major progress in terms of
product diversification
Export expansion Marketing assistance to the industry to
forge joint ventures to secure global
markets
Increased interaction between
Indian textile industry and
foreign counterparts through
participation in foreign
exhibitions and delegate visits


57
Exhibit 1.3.1: National Textile Policy, 2000 A snapshot
Objectives Measures introduced Impact/progress
Employment
generation
Setting up a venture capital fund for
tapping knowledge-based entrepreneurs
of the industry

Re-design and revamp schemes and
programmes initiated in the handloom,
sericulture, handicrafts, and jute sectors
to ensure better returns for those from the
disadvantaged categories

Human resource
development
Strengthening HRD institutions, including
NIFT, on innovative lines
Development of skilled labour in
the 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-up
manufacturing, 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 technology
adoption, additional capacity building and provides for a higher level of assistance to segments that


58
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 to
http://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 interest
charged by the lending agency except for the spinning machinery for which it will be 4
percentage points.
The scheme continues to provide cover for foreign exchange rate fluctuation not exceeding
5% for the spinning machinery for which it will be 4%.
The powerlooms units are now provided with an additional option to avail of 20% Margin
Money subsidy under TUFS in lieu of 5% interest reimbursement on investment in TUF
compatible specified machinery subject to a capital ceiling of Rs. 200 lakh and ceiling on
margin money subsidy Rs.20 lakh. A minimum of 15% equity contribution from
beneficiaries 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 a
capital ceiling of Rs. 200 lakh and ceiling on margin money subsidy Rs.15 lakh. A minimum
of 15% equity contribution from beneficiaries will be ensured.
5% interest reimbursement plus 10% capital subsidy for specified processing machinery is
continued.
The Scheme will now provide 5% interest reimbursement plus 10% capital subsidy for
specified machinery required in manufacture of technical textiles and garmenting
machineries.
Interest subsidy/capital subsidy/Margin Money subsidy will now be provided on the basic
value of the machineries and the tax component would be excluded for the purpose of
valuation 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 Control
equipments, 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 except
automatic shuttleless looms with the value cap of Rs. 8.00 lakh per machine and 10 years
vintage 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 scheme
only up to 25% of the cost of machinery.
For a specific thrust to garmenting, machineries for CAD, CAM and design studios and
likes will be included in the separate heading of the guidelines of the scheme with a
financial cap to be determined by the Inter Ministerial Steering Committee (IMSC) under the
Chairmanship of Secretary (Textiles).
Investments like land, factory building, pre-operative expenses and margin money for
working capital will now be ineligible for benefit of reimbursement under the scheme except
meant for apparel sector and handloom with existing 50% cap. In case apparel unit is
engaged in other activity, the eligible investment under this head will only be related to
plant & machinery eligible for manufacturing of apparel.

Source: Ministry of Textile


59
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. of
applications
Cost of
project
(Rs bn)
No. of
applications
Amount
(Rs bn)
No. of
applications
Amount
(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 (till
June 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 under
TUFS has been fixed till the quarter ending Dec., 2008, the data up to Dec., 2008 covers units whose project was
sanctioned prior to 31st March, 2007
Source: Ministry of Textiles and D&B India


60
Technology Mission on Cotton (TMC) 2000
1.3.8. TMC was launched in February 2000 with the primary objective of improving production, productivity
and 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 Technology
generation
Indian Council of Agriculture
Research
II
Transfer of Technology and
Development
Ministry of Agriculture
III
Improvement of Marketing
infrastructure
Ministry of Textiles
IV
Modernisation / Upgradation of G & P
Factories
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


61
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 I
Research
Development of new genotypes to improve quality
of cotton and cotton yarn in the country
Mini
Mission II
Technology
dissemination programs
for farmers
Extension services and distribution of improved
seed varieties
Mini
Mission III
Improvements in market
infrastructure
161 Market yards (out of sanctioned 250 market
yards) were modernised to avoid cotton
contamination
Mini
Mission IV
Modernisation of the
ginning and pressing
sector
829 ginning and pressing factories (out of targeted
993 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.


62
Duty Structure
1.3.12. The Government had increased customs duty on cotton fibre exports from 5% in FY02 to 10% in
FY03. 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
Cotton
fabrics
**30/35* ** 30 ** 20 ** 20 **15 **12.5 **10 **10 **10
**Attracts advalorem rate or specific rate whichever is higher basis
Source: Office of the Textile Commissioner and D&B India
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
Fabrics
16 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 have
been reduced by 4% each, i.e., to 10%, 8% and 4% respectively and CENVAT on cotton textiles and textile
articles has been reduced from 4% to Nil as a measure to stimulate the economy in the context of global
economic recession by Government of India on 7th December 2008. However, in Budget 2009-10, the optional
CENVAT on Pure cotton textiles restored at 4% and for other textile excluding Man-made filament yarns and
fibres at 8%
Source: Office of the Textile Commissioner and D&B India


63
1.4. WORLD SCENARIO FOR COTTON FIBRE
1.4.1. Cotton is mainly native to tropical countries. However, it is planted widely in both the hemispheres.
Cotton is critical to economies of many developing countries. Out of the 65 cotton-producing
countries, 52 were developing countries in 2007-08. Cotton is also regarded as one of the heavily
traded agricultural commodities, given the involvement of over 100 countries in exports or imports of
cotton. The world cotton industry has witnessed substantial improvement in terms of both production
and consumption of cotton. However, the Cottons share of world fibre use has declined to around
40% from about 60% in the 1960s. Nevertheless, it still is one of the major fibres produced in the
world.

WORLD COTTON DEMAND-SUPPLY DYNAMICS
1.4.2. World cotton production has declined for second consecutive years in 2008-09. World cotton
production has declined by around 2% and 10% in 2007-08
13
and 2008-09, respectively. In fact, world
cotton production at 23.5 mn tonnes during 2008-09 is the smallest since 2004-05. World cotton
production declined during the year primarily due to a reduction in world cotton area for the second
consecutive season.
Exhibit 1.4.1: World cotton Production (Season beginning August 1)


Source: International Cotton Advisory Committee (ICAC) and D&B India
1.4.3. Significant area of cotton was shifted to grains and oilseed production due to more attractive prices
than for cotton. World cotton harvested area has experienced sustained decline in the last few years.
According to the ICAC data, area under cotton cultivation shrank to 30.66 mn ha (estimated) in 2008-

13
2008-09 refers to Cotton year August 2008-July 2009 (year mentioned in this section refer to cotton year from
August to July unless otherwise stated)


64
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 consumption declined by around 17% in 2008-09. During 2008-09, cotton
consumption declined in almost all the major cotton consumers in the world.


65
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


Source: ICAC, D&B India
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.



66
Exhibit 1.4.5: Country-wise Share in Cotton Exports


Source: ICAC, D&B India
1.4.8. China continued to retain its position as the leading importer of cotton in 2008-09, accounting for
almost 23% of the worlds 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


Source: ICAC, D&B India

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,


67
particularly from Asia. The proportion of cotton exports in production also grew from 62.1% in 2004-05
to 99.3% in 2008-09. US is a net exporter of cotton. The following chart depicts the trend of exports
proportion in production.
Exhibit 1.4.7: Trend of cotton exports proportion in production


Source: ICAC, D&B India
1.4.10. US usually enacts Farm Bill in every 5-6 years including comprehensive legislations on farm policies.
The latest farm bill titled Food, Conservation, and Energy Act of 2008 (thereon, Farm Bill 2008) is
another bill in the long series of farm bills. This farm bill was structured under the purview of record
high farm incomes and very high market prices, by historical standards, for two consecutive years.
This was primarily in the case for grains, oilseeds and dairy.
1.4.11. The following table furnishes major policy initiatives incorporated in Farm Bill 2008 with an emphasis
on cotton farming.
Exhibit 1.4.8: United States Farm Bill 2008
Major Policy
Initiatives
Objectives Measures Current Status
Direct Payments
Counter-Cyclical
Payments
Marketing
Assistance
loans
Loan Deficiency
Payments
Providing income
support to farmers
engaged in farming of
upland or ELS cotton
and other mentioned
crops in the bill.
Producer has to enter
into an annual
agreement to receive
the benefit of Direct
Payments.
Counter-cyclical
payments are
provided, whenever
the current effective
commodity price is
lesser than the target
price.
Marketing Assistance
Loans are provided for
Direct Payment Rates
for upland cotton are
specified at US$
0.0667/lb.
Target prices for upland
cotton are specified at
US$ 0.7125/lb, US$
0.7125/lb and US$
0.7125/lb for CY 2008,
CY
14
2009 and CYs
2010-2012 respectively.
National Marketing
Assistance Loan Rates
for upland cotton and

14
CY Cotton Year for US is from August-July


68
Exhibit 1.4.8: United States Farm Bill 2008
Major Policy
Initiatives
Objectives Measures Current Status
9 months to protect
farmers from adverse
market conditions.
Loan Deficiency
Payments are meant
to support producers
with a cash payment
option without
indebting their
commodity.
ELS cotton are specified
at US$ 0.52/lb and US$
0.7977/lb, respectively
for CY 2008, CY 2009
and CYs 2010-2012.
Loan Deficiency
Payments are available
for all loan commodities
except ELS cotton.
Commodity
Certificates
Speeding up the
process of obtaining
commodity loan.
Commodity certificates
can be purchased at
effective adjusted
world price for upland
cotton.
USDA is authorised to
pay storage and other
costs associated with
upland cotton going
into the loan program.
Continues cotton
storage payments, but
reduces rates by 10%
from rates provided in
2006 for CY 2008-11.
Reduces rates by 20%
for CY 2012
Average Crop
Revenue Election
(ACRE) Program

To reduce market risks
by allowing farmers to
lock in revenue
guarantee.
ACRE is first time
introduced in Farm Bill
2008. It provides a
better match to the
producers current
production of all
covered crops
(including upland
cotton) than the
traditional schemes.
Payments under
ACRE are only
triggered when
revenue falls below the
guarantee.
ACRE revenue
payments are available
on 83.3% of acreage
planted or considered
planted to covered
commodities or peanuts
in CY 2009-11 and 85%
in CY 2012.

Recourse Loans
for High-Moisture
Corn and Seed
Cotton

Enhancing support to
farmers for cotton
farming.
Repayment of
recourse loans made
under this section was
made at loan rate
established for the
commodity, plus
interest.
Recourse seed cotton
loans are available on
any production of upland
and ELS cotton.



69
Exhibit 1.4.8: United States Farm Bill 2008
Major Policy
Initiatives
Objectives Measures Current Status
Special Upland
Cotton Marketing
Loan Provisions

To temporarily increase
cotton supplies into the
country
Special import quotas
are permitted
A limited global import
quota was authorised
when average monthly
spot price of base-
quality upland cotton
exceeded 130% of
average price during
preceding 36 months.
Upland Cotton
Economic
Adjustment
Assistance

To increase domestic
cotton consumption
Economic Adjustment
Assistance will be
provided to all
domestic users of
upland cotton for all
documented use of
upland cotton during
previous month
regardless of the origin
of the cotton. This
provision is first time
introduced in Farm Bill
2008.
From August 1, 2008
through July 31, 2012,
economic adjustment
assistance equal to 4
cents/lb shall be
provided to domestic
users of upland cotton.
Payment rate drops to 3
cents/lb on August 1,
2012.
Assistance can be used
only for acquisition,
construction, installation,
modernisation,
development,
conversion, or
expansion of land, plant,
buildings, equipment,
facilities, or machinery.
Special
Competitive
Provisions for
Extra-Long Staple
Cotton

To increase exports and
maintain
competitiveness of ELS
cotton in world markets
Payments were made
to domestic users and
exporters when world
market price was
below the US price for
4 consecutive weeks.
Payments were made to
lowest priced competing
ELS cotton was less
than 134% of ELS loan
rate to exporters and
domestic users.
Cotton Price
Forecasting

For better information
dissemination
Agricultural Marketing
Act 1929 prohibited
any prediction of
cotton prices from
issuance or inclusion
in any government
report, bulletin, or
other such publication.
Restriction is repealed in
Farm Bill 2008.


70
Exhibit 1.4.8: United States Farm Bill 2008
Major Policy
Initiatives
Objectives Measures Current Status
Crop Insurance
and Disaster
Assistance
Obtaining cost savings,
greater compliance and
giving special treatment
to organic farmers.
Expanding research and
development. Timing
shifts in premium due
dates and company
expense
reimbursement. Giving
regular opportunities for
the Risk Management
Agency (RMA) to evalu-
ate the industry.
Title XV of the Farm
Bill 2008 authorizes
the Supplemental
Agricultural Disaster
Assistance Trust Fund.
Producers who will
suffer losses on eligible
commodities in
designated agricultural
disaster counties and
producers with losses
that exceed 50% for
farms in counties
outside a disaster area
will be eligible for
assistance under this
program.
Source: USDA, D&B India
China
1.4.12. China is of particular significance in the world cotton industry given that it is not only the largest cotton
producer but also the biggest consumer of cotton. There are five main cotton-planting areas in China:
the South China Region, the Yangtze River Region, the Yellow River Region, the North Region, with a
Special Early-Maturing Cotton Region and the Northwest Inland Region (China Agricultural Network,
2007). Among them, Xinjiang Autonomous Region (included in Northwest Inland Region) takes a
significant position in cotton production in China.
1.4.13. According to ICAC data, the Chinas cotton production stood at an estimated 8.02 MMT during MY
15

2008-09. Despite being the largest producer of cotton, Chinas cotton production has been unable to
meet its cotton consumption, which is estimated at 9.00 MMT for MY 2008-09. Thus, china imports
large quantities of cotton and is the largest importer of cotton. Chinas cotton imports in MY 2008-09
are estimated to have been around 1.42 MMT lower compared to 2.51 MMT in the previous year.
Destination-wise United States is the largest import origin for China followed by India. According to an
USDA report Indias share in Chinas cotton import has increased from 23% during MY 2006-07 to
32% in MY 2007-08.
1.4.14. Chinese government has over the years taken many measures such as providing seed subsidy,
reforming the classification system etc to support the Chinese cotton as well as textile industry. While
the Chinese cotton market has been liberalised to greater extent the Government has been
intervening by way of state purchase and sale of cotton with an aim to maintain orderly conditions in

15
MY Market Year for china is from August-July


71
the market. Government policies such as adjustment of sliding-scale duties, public acquisition of
reserve cotton, adjustment of export rebates for textile products and cotton subsidies for improved
species with a definite orientation to protect the farmers interests and enhance Chinas sustainable
development capacity for cotton products has provided substantial support to all the stake holders in
Chinas cotton economy.

Box 1.4.1: Working of the sliding scale duties and the macro adjustment by the
Chinese Government
As per information available, the Chinese government distributed 0.894 million tons worth of TRQs
and 1 million tons worth of quotas with sliding scale duties in mid December 2009, which was done
earlier than that in previous years. It is reported that a further one million tons of quotas with sliding
scale duties will be distributed in April, 2010. The stated purpose of these measures is to increase
cotton supply in order to stabilize domestic cotton prices while supporting the textile industry.
It is estimated by Chinese authorities that a supply-demand gap of 3.3 million tons will be seen for
the year, up from 1.7 million tons last year. Unlike in previous years, it may be difficult to source
cotton internationally. Hence, in order to avoid irrational cotton pricing, certain macro-control
measures were decided upon during the National Cotton Modulation Conference in Nov 2009.
The following integrated control measures are expected to be published soon. Apart from
distribution of quotas as mentioned above, cotton reserves will be sold to maintain a demand-
supply balance, and avoid sharp price increases. In 2009, 2.62 million tons of reserve cotton was
reportedly sold.


72
1.4.15. Some major policy initiatives of the Chinese Government to support the cotton industry have been
discussed in the below table:
Exhibit 1.4.9: Chinese cotton policy round-up
Policy Objective Measures Current Status
Cotton Quality
Classification
System Reform
Plan
To align Chinas
Classification
System with
international
standards

To create a more
objective and
scientific testing
process
Transfer responsibility of
cotton quality classification
and labelling to the Bureau of
Fibre Inspection of China
(BFIC) from the processing
industries.

Develop a National Cotton
Quality Database.

Develop Quality Standards for
HVI Testing. Replace the
earlier testing method based
on the classifiers subjective
judgment and experience to a
new system based on high
volume instrument testing
(HVI).

Replace the 85 Kg bales used
earlier with international
standard of 227Kg bales.

Develop a new humidity
control system to ensure
appropriate moisture levels for
cotton throughout the
processing chain.

Built Specialised Cotton
Warehouses where tested
and classified cotton will be
delivered on a voluntary basis
without changing ownership.
The seller will deliver cotton
out of the designated
warehouses after a sale is
completed.

Classification to be shifted
from textile factories to the
processing enterprises.
Classifiers will be trained and
licensed before they are hired
As of the end of 2008,
1,343 gins had been
completed or were
undergoing renovation of
equipment, of which 1,257
gins having a total baling
capacity of 6.8 MMT were
completed

85 classification
laboratories equipped with
278 HVI instruments
capable of classifying 4.2
MMT of cotton were
developed by around 82
classification agencies
spread nationwide

Increasing number of gins
participating in cotton HVI
classification Around 1,216
gins participated in cotton
HVI classification as of the
end of 2008, up 57 percent
over that in 2007.

Total processed cotton
based on the new
classification system
reached 2.8 MMT during
2008
According to Chinas
cotton classification plan,
the new classification
system will be fully
enforced by September
2010; specifically small
bale cotton will not be
allowed to enter the
market.

Concession loans are
being provided to the
entities engaged in the
reform for equipment
renovation


73
Exhibit 1.4.9: Chinese cotton policy round-up
Policy Objective Measures Current Status
Multi-year seed
subsidy
program
To stabilise the
cotton planted
area
The subsidy provided to large
seed producers/traders for
selected high quality
varieties through an open
bidding process
According to USDA a total
of $72 million (RMB 500
million) per year in 2007
and 2008 has been
appropriated to cotton
seed producers/traders to
cover 2.25 MHa of the
planted area in major
cotton-producing provinces
Subsidy to
Transportation
of Xinjiang
Cotton
To facilitate the
shipment of
outbound
Xinjiang cotton
which is
generally
hindered by
railcars
shortages
On June 23, 2008, MOFIN
published announcement on
Administrative Measures on
Subsidy to Transportation of
Xinjiang Cotton, whereby the
GOC will provide a
transportation subsidy for the
shipment of cotton out of
Xinjiang, effective MY08-09
through MY10-11 tentatively.

The subsidy rate is $59 (RMB
400)/MT.
-
Targeted loans To financially
assist domestic
cotton marketing
The Agriculture Development
Bank of China (ADBC)
provides targeted loans with
favourable terms for the
purchase of cotton.
According to the USAD, as
at end March 2008, ADBC
disbursed loans for more
than 4.4 MMT of the 2007
crop

Xinjiangs loans reached a
record $3.7 bn covering
more than 2.1 MMT of the
MY07-08 crop in the
province, up 13 percent
over the previous year.
State cotton
reserve
management
policy
To support the
domestic cotton
price and
facilitate
marketing of
domestic cotton

Enhance the
ongoing
classification
reform by paying
out a premium
for large bale
cotton.
Government conducts sales
and purchase of cotton
-


74
Exhibit 1.4.9: Chinese cotton policy round-up
Policy Objective Measures Current Status
Quality Credit
Assessment
Measures.
To strengthen
the inspection
and quarantine
supervision of
imported cotton,

Prevent from
misdeeds in
trade, such as
defect or
adulteration,

Guarantee the
quality of
imported cotton
General Administration of
Quality Supervision,
Inspection and Quarantine of
People's Republic of China
(AQSIQ) decided to
implement registration
management upon the
overseas cotton supplier
enterprises who are going to
export to China mainland
(overseas supplier
enterprises).
-
Tariff Rate
Quota (TRQ)
To regulate the
market and
protect the
interests of both
farmers and the
domestic textile
industry
On joining the WTO, China
was required to establish
Tariff Rate Quotas (TRQ's) on
a number of commodities
including cotton, permitting
imports of a stipulated amount
at a nominal tariff (1% for in-
quota cotton).

The GOC adjusts the tariff
rate applied to cotton imports
under the additional TRQ as
an when required

Source: Various, D&B India
Brazil
1.4.16. In 2008-09
16
, Brazil accounted for around 5.19% of the total world cotton production after increasing
to 6.12% in 2007-08 from 4.05% in 2005-06. Brazils cotton production declined by around 23.85%
during 2008-09 primarily on account of reduction in planted area, especially in the Mato Grosso
region. According to a USDA report, the farmers shifted area under cotton production to soyabean
and other commodities mainly due to lack of adequate financing. In the last few years although
consumption of cotton in Brazil has witnessed marginal improvement, it has been lower compared to
the domestic cotton production. Consumption of cotton has declined by 7.07% during 2008-09. Brazil
is emerging as one of the leading exporter of cotton. Brazils cotton exports increased at an annual
average rate of 21.41% in the last four years (2006-2009)

16
2008-09 refers to the period from August 2008 to July 2009


75
1.4.17. Brazilian Government has over the years devised policies to aid agriculture sector in general and
some commodities in particular. While certain policies such as the Preferential credit policy are aimed
at providing support the entire agriculture sector, other like the income support programs have been
introduced to promote certain commodities. Preferential credit policies, which have been in place in
Brazil since the 1970s, are primarily aimed at stimulating the expansion of agricultural production.
New income support programs were also put in place in Brazil since the agricultural policy reform in
the early 1990s. The details of some of the major policy initiative taken by Brazil to support cotton
sector have been enumerated in the below table:
Exhibit 1.4.10: Brazil cotton policy round-up
Major Policy
Initiatives
Objective Measures
PEP (Premium
to Commercial
Buyers)
To supplement the supply of
commodities in areas of the
country considered to be
deficient in agricultural
production
Premium is paid to wholesale buyers who are
wiling to acquire the product indicated by the
federal government from the farmer and /or
cooperative at a reference value

premium is equal to the difference between the
minimum guaranteed price and the market
price.
PEPRO
(Equalization
Premium to
Farmers)
Compensate the farmers for the
weakening U.S. dollar in relation
to the Reais.
Government grants a premium to the farmer or
cooperative which sells its products at public
auction.

The premium paid is the difference between
the Reference Value established by the
government and the value of the premium (the
maximum value paid by the government as a
guarantee of the Reference Value)
PROP
(Premium to
Commercial
Buyers under a
Private Sell
Option
Contract)
To signal future price for the
market

Guarantee future income to the
farmers
It is a subsidy program granted in the form of a
public auction for the consumer to acquire, at a
future date, a determined product directly from
the producer and/or cooperative at a prefixed
price, utilising a private contract for the option
to sell.

Government pays buyer of the product a risk
premium if the market price falls below the
option exercise price
AGF (Federal
Government
Acquisition )
To ensure purchase of product
at a minimum price determined
by the Government

To support the farmers

To support commodity prices
The Government buys agricultural products at
the minimum price when the market price is
below the minimum.
Source: Various, D&B India


76
Pakistan
1.4.18. Pakistan announced its first ever Textile Policy 2009-2014 during August, 2009. Policy targets to
increase exports from the existing US$ 10 billion to US$ 25 billion by the end of policy period. The
following initiatives have been taken to support domestic textile industry by the government.
Exhibit 1.4.11: Pakistan cotton policy round-up
Major Policy Initiatives Objective
Cotton Standardisation System
(1987-1992)

To earn better price in the international market
To allow graded cotton to be used for domestic use
Clean Cotton Programme
(2005-06)

To enable production of standardised and clean (free from
contamination) cotton
Cotton Fibre Testing

To encourage instrumental classification of cotton fibre
Infrastructure and technological
development

To develop clusters with amenities such as laboratories,
product development centres, research centres, etc.
To develop ginning factories (import duty on ginning presses
reduced to 5%
Focus in value addition

To introduce BT cotton on priority basis
To enhance production of long staple cotton
Marketing Insurance Schemes
& Zero rating of Exports

To foster the export of cotton fibre
To protect exporters against unforeseen losses
Tariff Rate Quota (TRQ)

To regulate the market and protect the interests of both
farmers and the domestic textile industry
First Textile Policy (2009-2014) To increase exports from present level of US$ 10 billion to
US$ 25 billion.
Source: D&B India


77
STOCK-TO-USE RATIO ANALYSIS:
1.4.19. SU ratio can be defined as the level of carryover (ending) stock for any particular commodity as a
percentage of the total demand or use. It indicates the interrelationship between supply and demand
of any commodity.
1.4.20. The stock-to-use ratio can be calculated by following mathematical expression.
(Beginning Stock + Production + Imports) (Domestic Consumption + Exports)
x 100
(Domestic Consumption (OR) Mill Use + Exports)
1.4.21. Stock-to-use ratio is considered as one of the important indicators of future price trend of any
commodity as it indicates the surplus supply against demand. According to a study comparing the
monthly world stocks-to-use estimates (in percent) with the cotlook A-index of world cotton prices (in
cents per lb), the stocks-to-use ratio vary inversely with world prices.
1.4.22. World stock-to-use ratio of cotton has largely remained range bound albeit some fluctuations
depending on the production and consumption of cotton across various countries in the world. During
2004-05, the growth in world cotton production (27.86%) outpaced the growth of world cotton
consumption (9.63%) leading to surge in the SU ratio. The SU ratio surged to 49% in 2004-05 as
compared to 41% during 2003-04. SU ratio remained stable at 49% in 2005-06 and experienced
marginal decline in the two subsequent years before increasing to 56% in 2008-09. The increase in
SU ratio could be attributed to the slowdown in consumption and weaker international price scenario
in 2008-09.






78
Exhibit 1.4.12: Stock-to-Use Ratio in Major Cotton Producing Countries
17

(Crop year: August-July)
Countries 2004-05 2005-06 2006-07 2007-08 2008-09
World 49.0 49.0 48.0 47.0 56.0
India 52.0 37.0 33.0 28.0 59.0
India* 37 24 20 15 21.4
China 32 42 34 30 42
United States 26 26 53 55 41
Pakistan 36 32 30 31 28
Brazil 72 44 75 69 46
*Data is taken from Cotton Advisory Board, Indian cotton crop year: October-September
Source: ICAC (cotton: world Statistics September 2009), D&B India
1.4.23. There has been no general pattern observed in the SU ratio of major countries of the world. The SU
ratio varies across different countries depending on their domestic production, consumption and its
trade of cotton. The SU ratio is generally calculated according to the cotton cropping season of any
country.

17
Stock-to-use ratio is calculated as ending stocks divided by consumption plus exports.



79
1.5. FUTURE PROJECTIONS FOR COTTON FIBRE
1.5.1. Cotton fibres lie at the lowermost level of the textile chain with readymade garments and other final
products being in the final stage. Production and consumption at each stage is influenced by the
demand supply dynamics for readymade garments. D&B India has projected the cotton fibre
consumption on the basis of apparent
18
cotton fabric consumption in the country. For projection of
production, D&B India has taken two production yield scenarios in the country.

FUTURE OUTLOOK OF INDIAS COTTON PRODUCTION
D&B Forecasts:
1.5.2. Cotton production is largely dependent on the area under cotton production coupled with its
productivity. Given the issues pertaining to food security and land pressures, it has been assumed
that the area under cotton production is largely constant at the current level (which is 94.06 lakh
hectares). Thus, the future production is expected to be driven by improvement in cotton yield. The
following exhibit showcases the forecasting methodology adopted in projecting production
Exhibit 1.5.1: Production of cotton fibre forecasting methodology

Source: D&B India

18
Apparent cotton fabric consumption= Production + Imports-Exports


80
1.5.3. The following two scenarios have been considered for projecting the future cotton production in India:
Scenario I: Cotton yield will grow by 4.0%
Scenario II: Cotton yield will growth by 4.7% (growth rate required to achieve the current
average yield of cotton in the world, excluding the cotton yield in India at 873 kg/ha by
2020)
Exhibit 1.5.2: Cotton fibre production forecasted by D&B India
Year
Scenario I Scenario II
Estimated production
(Lakh bales)
Yield (Kg
/ha)
Estimated production (Lakh
bales)
Yield (Kg
/ha)
2010-11 315 569 319 577
2014-15 368 666 384 693
2019-20 448 810 483 873
Source: D&B India
Production forecast by Directorate of Cotton Development, Mumbai (DOCD)
1.5.4. The forecast of DOCD are based on the following assumptions:
Area expansion is limited and there will be no increase in area. It can be ranged between 95-
100 lakh hectares
Maximum production and yield obtained in major states during last few years were taken as
the base for estimation
Availability of irrigation potentiality in the respective states was considered.
Growth rate of cotton production during the last decade in the country.
1.5.5. Based on the above assumption, the forecast of cotton production by DOCD are as follows:
Exhibit 1.5.3: Forecasting of cotton fibre production by DOCD, Mumbai
Year
Estimated production Projected yield
(Lakh bales) (Kg lint per ha)
2010-11 330 561
2014-15 395 671
2019-20 475 807
Source: DOCD Mumbai


81
FUTURE OUTLOOK FOR COTTON CONSUMPTION IN INDIA
1.5.6. The estimated consumption of cotton is derived by applying a conversion ratio to the estimated
consumption of cotton fabric. The fabric consumption is determined by world GDP growth rate, Indias
PCI (per capita income) and the growth rate of MMF (man made fibre). The following mathematical
expression showcases the relationship between fabric consumption and stated variables.
Fabric consumption=f (World GDP growth, Indias PCI, Growth in MMF production)
1.5.7. The following exhibit depicts the forecasting methodology adopted in consumption projection.
Exhibit 1.5.4: Forecasting Methodology

Source: D&B India





Source: D&B India
Box 1.5.1: Conversion ratio
The conversion ratio shows the amount of average cotton fibre (in kg) required to manufacture one
square meter of average cotton fabric. D&B India has applied the conversion ratio to arrive at cotton
fibre consumption that has been derived from a certain value of cotton fabric consumption for all
periods under consideration.


82
1.5.8. Key assumptions
World GDP growth rate 4% (as per IMF World Economic Outlook October 2009)
Indias PCI growth rate 6.5% (6.5% PCI growth is derived taking into consideration a GDP growth of
8% and population growth of 1.5%. GDP growth of 8.0% is expected to be driven by expected
average investment rate of close to 35% and an expected consistent increase in demand.)
MMF (100% non-cotton) production growth - 10% (with a GDP growth of 8%, the growth in MMF
production (100% non-cotton cloth) has been estimated at around 10%
1.5.9. On the basis of the above assumptions, cotton consumption is forecasted to increase to around 413
lakh bales by FY20.
Exhibit 1.5.5: Cotton consumption forecast
Year
Cotton fibre consumption
(Lakh bales)
2010-11 267
2014-15 323
2019-20 413
Source: D&B India
Based on these forecasts cotton fibre consumption is expected to have 52% share in the total fibre
consumption as compared with 48% of MMF consumption in FY20.

IMPLICATION:
1.5.10. The forecast for domestic cotton consumption and production for the next 10 years reveal that the
surplus of production over consumption will decline gradually.
Exhibit 1.5.6: Scenario I Yield growth 4% (in lakh bales)
Year Production Consumption Surplus
2010-11 315 267 48
2014-15 368 323 45
2019-20 448 413 35
Source: D&B India


83
Exhibit 1.5.7: Scenario II - Yield growth 4.7% (in lakh bales)
Year Production Consumption Surplus
2010-11 319 267 52
2014-15 384 323 61
2019-20 483 413 70
Source: D&B India
1.5.11. The robust increase in domestic consumption is likely to drive down the surplus in cotton over the
years. Thus, it is essential to focus on significantly improving the domestic production of cotton to
meet the expected increase in domestic demand for cotton.
1.5.12. 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, cotton drives Indias strength in the global T&C markets. In the coming years,
this strength is expected to accelerate considering the fact that both area under cotton cultivation and
production are declining in China and the US. Over the past few years, there has been an increasing
inclination towards shifting the textile processing base to emerging countries. Thus, India will be able
to make use of the growing opportunities in the cotton industry by increasing its cotton production and
strengthening its textile value chain.

ESTIMATING THE INVESTMENT REQUIRED FOR STRENGTHENING
THE TEXTILE VALUE CHAIN
1.5.13. Given that the production of cotton fibre, MMF fibre and filament yarn is expected to witness a
substantial increase in the next 10 years, the installed capacity for value addition under the textile
value chain also needs to improve substantially 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. The required capacity has been estimated on the
basis of the increased fibre production
19
. The underlying assumptions used to arrive at investment
estimates (mentioned against each segment below) are based on the Vision for Indian textile and
clothing industry CITI 2007-2012, Report of working group on Textiles & Jute industry for the eleventh

19
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 is assumed as 6001 mn kg. The investment estimate therefore considers both
MMF as well as cotton segments.


84
five year plan (Ministry of textile) and inputs from major industry stakeholders, who are members of
the sub-group.
Exhibit 1.5.8: INVESTMENT REQUIRED TILL
THE TERMINAL YEAR 2020 (RS CR)
Spinning 63,525
Weaving 38,485
Knitting 12,499
Processing 26,695
Garments 35,305
Grand total 176,510
Source: D&B India
Estimated investment in spinning sector
1.5.14. The estimated investment in the spinning sector has been arrived at on the basis of the assumptions
stated below:
49. It is assumed that the average conversion ratio of cotton and MMF fibre to spun yarn will be
around 0.9.
50. The productivity level for new spindles is taken as 190 gms/spindle/shift @95% utilisation.
51. It has been assumed that 1.65 mn spindles will be replaced every year from the existing
spindles.
52. Productivity of spindles replaced is taken as 175 gms/spindle/shift and 90% utilisation.
53. It has been assumed that 20% of the discarded spindles will be reused although at lower
productivity level of 155 gm/spindle/shift and at 80% utilisation.
54. For estimating yarn production on old spindles, it has been estimated that 8 mn spindles are
out of use. Therefore, the present spindles capacity is 32 mn spindles (as against 39 mn
spindles mentioned by the Office of Textile Commissioner).
55. The productivity for existing spindles is taken as 150 gms/spindle/shift @90% utilisation.
56. Second-hand spindles will be used to replace 15% of the required spindles.
57. As compared with the cost of modernisation per spindle (Rs 10,000) and the capital cost for
new spindle (Rs 35,000) a second-hand spindle will cost Rs 10,000.



85
Exhibit 1.5.9: INVESTMENT REQUIRED IN SPINNING SECTOR BY 2020
Spinning Units 2019-20
Yarn production on spindles replaced
Replacement spindles-1.65 mn per year mn 18.15
Annual output (per spindle/per shift -175 gm @90% utilisation) kg 168
Annual yarn production on replaced spindles mn kg 3,053
Yarn production on existing spindles
No. of old spindles ( 32 mn -18.15 mn) mn 13.85
Annual output/spindle (per spindle/per shift -150 gm @90% utilisation) kg/year 144
Annual yarn production on existing spindles mn kg 1,997
Yarn production on discarded spindles which will be reused (3.63
mn)

(20% of discarded will be reused (of 18.15 mn) , productivity 155 gm/per
spindle/per shift and at 80% utilisation
mn kg 481
Total yarn production mn kg 5,531
Projected spun yarn production (2019-20) mn kg 8,330
Additional yarn production for which new spindles required mn kg 2,799
Annual output /spindle (per spindle/per shift -190 gm at 95% utilisation) kg/year 193
No of fresh spindles required mn 15
No of spindles for fresh capacities acquired second hand mn 2
Capital cost for a new spindle Rs 35,000
Capital cost of a second hand spindles (per spindle) Rs 10,000
Cost of modernisation of spindles ( per spindle) Rs 10,000
Total projected investment (for approx. 34 mn additional spindles)
For new spindles Rs crore 43,197
For second-hand spindles Rs crore 2,178
For replacement Rs crore 18,150
Total Rs crore 63,525



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Estimated investment in weaving and knitting
1.5.15. The estimated investment in the weaving and knitting sector has been arrived on the basis of the
below stated assumptions.
Assumptions for weaving
1. The estimated fabric production has been arrived at by assuming a CAGR of 7% during
FY09-FY20. Therefore, total fabric produced in 2020 is 114 bn sq meters.
2. 75% of the fabric produced is woven & 25% of the fabric produced is knitted
3. The break-up of additional fabric production would be as follows: On shuttle-less looms =
30%; On automatic looms = 30%; On semi-automatic looms = 15%; On plain looms = 25%
4. Average productivity of shuttle-less loom is assumed to be around 615 sq mtrs/day;
production per automatic loom per day = 175 sq mtrs/day; production per semi-automatic
loom per day = 110 sq mtrs/day; production per plain loom per day = 100 sq mtrs/day
5. Capital cost of new shuttle-less loom = Rs 25 lakhs; Capital cost of new automatic loom = Rs
10 lakhs; Capital cost of new semi-automatic loom = Rs. 1 Lakh; Capital cost of new plain
loom = Rs. 1 lakh
6. Capital cost of second hand shuttle-less loom= Rs. 12 lakh; Capital cost of second hand
automatic loom = Rs. 3 lakh
7. Number of working days in a year = 356 days
Exhibit 1.5.10: INVESTMENT REQUIRED IN WEAVING SECTOR BY 2020
Weaving Units 2019-20
Additional fabric required by 2019-2020 bn sq mtrs 42.6
% of additional fabric production on shuttle-less looms 30%
% of additional fabric production on automatic looms 30%
% of additional fabric production on semi-automatic looms 15%
% of additional fabric production on plain looms 25%
Production per shuttle-less loom per day sq mtrs/day 615
Production per automatic loom per day sq mtrs/day 175
Production per semi-automatic loom per day sq mtrs/day 110
Production per plain loom per day sq mtrs/day 100


87
Exhibit 1.5.10: INVESTMENT REQUIRED IN WEAVING SECTOR BY 2020
Weaving Units 2019-20
Number of working days in a year days 356
Capital cost of new shuttle-less loom Rs lakh 25
Capital cost of new automatic loom Rs lakh 10
Capital cost of new semi-automatic loom Rs lakh 1
Capital cost of new plain loom Rs lakh 1
Capital cost of second hand shuttle-less loom Rs lakh 12
Capital cost of second hand automatic loom Rs lakh 3
Number of shuttle-less looms required No. 58,316
Number of automatic looms required No. 204,939
Number of semi-automatic looms required No. 163,020
Number of plain looms required No. 298,870
% of second-hand shuttle-less loom % 35%
% of second-hand automatic loom % 15%
% of second-hand semi-automatic loom % 0%
% of second-hand plain loom % 0%
Investment for new shuttle-less loom Rs cr 11,925.64
Investment for new automatic loom Rs cr 18,342.07
Investment for new semi-automatic loom Rs cr 1,630.20
Investment for new plain loom Rs cr 2,988.70
Total investment required Rs cr 34,886.00
Assumptions for knitting
1. Conversion factor (sq mtrs to kg) = 6
2. Average production per machine per day = 180 kg
3. Capital cost of new Machine = Rs 0.35 cr
4. Capital cost of second hand machines = Rs 0.1 cr



88
Exhibit 1.5.11: INVESTMENT REQUIRED IN KNITTING SECTOR BY 2020
Knitting Units 20019-20
Estimated additional fabric required in the terminal
year
bn sq mtrs 16.7
Conversion factor (sq mtrs to kg) 6
Additional fabric required mn kg 2,786
Average production per machine per day kg/day/machine 180
Number of working days in a year days 356
Average production per machine per year kg / year / machine 64,080
Number of machines required No. 43,476
Capital cost of new Machine Rs cr 0.35
Capital cost of second-hand machines Rs cr 0.1
% of second-hand machines % 25%
Investment required Rs cr 12,499.00
Estimated investment in processing
1.5.16. The estimated investment in the processing sector has been arrived on the basis of the below stated
assumptions.
Assumptions:
1. It is assumed that 75% of the total fabric produced is processed
2. 75% of the additional fabric produced by the shuttle-less and automatic looms will require
modernised processing units and the existing capacity could cater to the remaining production
3. Conversion ratio of linear mtr to sq mtr = 2.18
4. Number of meters processed per day = 100,000 linear mtr / day
5. Additional investment required for modernisation of existing process houses (assumed as
20% of investment in new process houses)





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Exhibit 1.5.12: INVESTMENT REQUIRED IN PROCESSING SECTOR BY 2020
Processing Units 2019-20
Incremental fabric required for domestic
consumption by 2020
bn sq mtrs 19
Additional processed fabric demand bn linear mtrs 8.80
Number of meters processed per day linear mtrs / day 100,000
Number of working days per day days 356
Cost of modern process house
Rs cr per 100,000 mtr/day
capacity
90
Investment required for new modern process
houses
Rs cr 22,246
Additional investment required for modernisation
of existing process houses (assumed as 20% of
investment in new process houses)
Rs cr 4,449
Total investment required in processing Rs cr 26,695
Estimated investment in garmenting
1.5.17. The estimated investment in the Garmenting sector has been arrived on the basis of the below stated
assumptions. The estimates for investment in garmenting excludes investment requirement of the
technical textile sector.
Assumptions
1. Conversion ratio for home textiles = 4.3 sq m/piece
2. Conversion ratio for garments = 2.03 sq m/piece
3. 75% of the processed fabric would be converted into garments by the garmenting industry
4. 60% of the fabric is produced for apparel segment
5. 35% of the fabric produced on shuttle-less looms is for home textile
6. 5% of the fabric produced on shuttle-less looms is for Technical textile






90
Exhibit 1.5.13: INVESTMENT REQUIRED IN GARMENTING SECTOR BY 2020
Garmenting Units 2019-20
Additional pieces required bn pieces 13
Number of pieces per day per machine pieces 15
Number of working days in a year days 356
Number of pieces per year per machine pieces/year 5,340
Number of machine required No. 2,353,686
Capital cost of new machine Rs lakh 2
% of second-hand machine % 0
Investment required Rs cr 35,305



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1.6. THE SUB-GROUP ON COTTON TO FORMULATE
NATIONAL FIBRE POLICY
OVERVIEW
1.6.1. The sub-group on cotton was created to make suggestions towards the National Fibre Policy with
regard to the cotton fibre, to ensure its sustained availability over a 10-year period. The sub-group has
identified key issues and made recommendations towards the above goal.
KEY ISSUES IDENTIFIED BY THE SUB-GROUP
1.6.2. 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. This is more
prominent in the central and southern zone where nearly 80% and 60% of area under cotton
cultivation is rain-fed respectively. While the north zone has relatively better irrigation facilities, rising
water table, salinity, high temperature in the early stages and emerging problem of CLCV are some of
the major yield limiting factors.
1.6.3. 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 Human hair, animal hair, bird feather, yarn pieces, cloth pieces, polypropylene
fibres, jute etc.
Non-fibrous Stones, metallic wire, nails, rubber, leather, tin, insects etc. These
contaminants are easier to remove, but can cause damage to the mechanical parts of the
cleaning machinery.
1.6.4. Poor quality: Due to average cotton quality, a globally competitive cotton sector has been difficult to
develop. With growing demand for high quality products, the cotton sector and larger textile
enterprises have initiated imports of quality cotton.
1.6.5. Lack of infrastructure: Infrastructure in terms of transport is poor. The cost of transporting cotton
fibre from one state to another incurs substantial cost.
1.6.6. Problem of admixtures (Different varieties of cotton fibre with different physical properties is mixed
together). This leads to inconsistencies in strength, length, micronaire, colour and reflectance in


92
cotton. Admixture also makes the grading and testing of cotton difficult. Admixtures occur both at the
harvest and post harvest stages when (a) different varieties of cotton are picked and stored together,
(b) when different lots are mixed by local traders or farmers for transportation to the market, (c) in the
markets before sale by farmers and traders and (d) at the ginner yard, where kapas is mixed before
ginning. As a result, the average fibre quality in a bale of cotton has become unpredictable. Quality
conscious mills, particularly the export oriented ones, are compelled to engage themselves in
expensive bale management exercises to maintain yarn quality.
1.6.7. 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 into quality
testing and grading of cotton across, uniform standards are not being used.
1.6.8. Need for an Indian arbitration for imported cotton: 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 right earnest,
problems in future will get compounded. Various importing countries believe that ICA Bylaws and
Rules are biased in favour of sellers. Cotton business, both national and international, needs to be
codified with updated rules and regulations, based on the principle of natural justice. Historically,
arbitration machinery was introduced in Liverpool when it was a major trading, Since Liverpool is no
longer a trading centre, Liverpool Arbitration machinery has lost its relevance and therefore Indian
Arbitration should be brought in its place.
RECOMMENDATIONS OF THE SUB-GROUP:
1.6.9. The following broad objectives for the National fibre policy have emerged from the deliberations of the
sub-group:
The National Fibre Policy should be fibre-neutral.
The fibre policy should look to 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 countrys strength for sustainable development of all the sub sectors
of the cotton economy through backward and forward integration.


93
To strengthen and improve vibrancy in cotton economy, through upgraded and reformed
marketing system and conscious branding of cotton for use.
To create an institutional mechanism which monitors, coordinates and also create unified
platform of all other interests on lines of National Cotton Council of USA.
1.6.10. The recommendation made by the sub-group members can largely be divided under the following
broad heads:
I. Recommendations for enhancing production:
1.6.11. The members of the sub-group opined that major interest of the policy for cotton fibre should be
enhancing the production of cotton. Augmenting cotton production would not only help India to meet
the growing domestic demand but also explore export opportunities. The following recommendations
have been made by the members of the sub-group for augmenting cotton production in India:
An institutional framework could be created for development of cotton 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. The area under irrigation could be
increased to 60% from its present level of 38% at national level. Further, members opined
that 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.
Initiative should be taken to increase awareness among farmers for adoption of rain water
harvesting, soil moisture conservation techniques, suitable agronomic practices in order to
increase the utilisation of rain water.
1.6.12. Improving Cotton Yield New Practice:
New farming practices could be developed in order 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 as important too for enhancing cotton productivity.
Emphasis could be given to spread of Precision farming to improve 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 level.
Green manure / FYM / Compost / Vermi-compost production and supply has to be taken up at
large scale under organised sector so that it become available to all cotton growers. This is
must for maintaining soil productivity at sustainable level.


94
1.6.13. Extension Services:
Improved extension activities and certification facilities with subsidised inputs could be
provided to cotton farmers to sustain their income level.
In field extension, Public-Private Sector Partnership projects may be launched on Large
Area basis, ensuring technology inputs and marketing tie-up, so that diversion of cotton area
to other competing crops can be minimised.
1.6.14. Research Thrust: National research thrust for the cotton production sector could continue. It was
recommended that 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 the level of 40 42% as
compared to 34 36% of current cultivars.
1.6.15. Integrated Pest Management Practices: On line pest monitoring system at block level and IPM
network to advise the farmers could be strengthened. Integrated disease and pest management
strategies could be implemented vigorously on cluster basis.
1.6.16. Nutrition Management: Availability of sufficient quantity of micronutrients as in case of NPK could be
ensured. Fertiliser companies could give equal importance to micronutrient manufacturing &
marketing.
1.6.17. Training and awareness: The system of transfer of knowledge to farmer through Farmers Field
School (FFS) could 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 in order to ensure availability of one cotton Master Trainer at each Block level.
1.6.18. Co-ordination and interaction of various NGOs: Lessons can be derived from micro examples of
yield improvement and production enhancement programs run by CAI, CITI, CDRA and SIMA in
different states of the countries. The case studies of some projects conducted by CITI-CDRA and
SIMA-CDRA have been appended in the Annexure
20
.
1.6.19. Contract Farming: The practice of Contract Farming can augment production, also create
demonstrative models, for improving farm practices, increasing productivity and sequentially direct
itself towards balancing overall supply and demand of cotton.
1.6.20. Wasteland Commissioning: Commissioning and restructuring of land can increase availability of
land for profitable cotton farming, through contract and company driven corporate farming.

20
The submission of Dr. KR Kranthi, Acting Director, CICR Nagpur have been supplemented with this report


95
II. Recommendations for enhancing investment along the textile value chain:
1.6.21. The interest compensation of 5% available under the Technology Upgradation Fund Scheme (TUFS)
has helped in incentivising investments in the T&C industry. TUFS has had a major role to play in the
growth of the industry and increased investments in recent years in the sector. Given the significant
estimated investments required for the textile value chain, it is therefore recommended that the
Technology Upgradation Fund Scheme is continued, so that the industry may avail of the benefits
under it.
III. Recommendations for Improving Quality:
1.6.22. Improvement of Fibre parameters: 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. Improvement of Fibre
parameters through Fibre Engineering by deploying Bio Technology and commissioning researches
1.6.23. Research Integration: Constant Research to improve and optimise fibre properties comparable to
benchmark international high rank qualities for cotton. There should be focus on Fibre Balancing
Research (Between Supply & Demand) and an attempt to integrate research to capacitate every node
of the value chain.
1.6.24. Use of coloured poly propylene bags: To prevent contamination and also, to facilitate detection of
contamination the use of white poly propylene bags for packing fertilisers should be replaced by the
use of coloured poly propylene bags.
1.6.25. Infrastructure of Cotton: There is a serious need to improve Logistics of Cotton. The Logistics
includes conduct of cotton and its upkeep in warehouses and at port. The ware housing 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. The members of
the sub-group recommended that 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.
IV. Recommendations for improving infrastructure:
1.6.26. There is a serious need to improve the logistics of cotton, which includes conduct of cotton and its
upkeep in warehouses and at port. The ware housing 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.


96
V. Recommendation pertaining to export of cotton fibre:
1.6.27. A healthy stock-to-use ratio could be maintained in order to avoid any distortions in the cotton market.
1.6.28. Trade policy for cotton could target exports of surplus cotton after meeting the requirements of
domestic mills. Imports can happen in slots, where there may be deficit in domestic production. No
import duties are needed, and any restrictions on imports could be need-based.
1.6.29. Exports of cotton fibre should be monitored on a time-to-time basis each cotton-year, so as to ensure
stability in supply as well as prices for cotton fibre to the domestic mills.
VI. Recommendations for improving marketing and branding of cotton:
1.6.30. Grading of Kapas is imperative for improving the marketing and branding of Kapas and lint. The
grading system by independent agency, better organised, regulated ware housing 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 so as to ensure judicious
allocation of resources in crop patterns.
A structured mechanism for promotion of cotton use could be developed, in order to sustain
domestic consumption on a long term basis, so as to maintain the strength of cotton
economy.
Pilot projects for marketing of lint by the farmers, instead of kapas as 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 for any reorientation of their role towards inclusion of price stability.
VII. Recommendations towards value addition in the cotton value chain:
1.6.31. Returns on cotton fibre can be enhanced through backward integration of the cotton value chain. The
example of the sugar industry could be adopted for the cotton industry, through such activities as de-
linting and use of cotton stalks which presents great opportunity with minimal investments. Further,
realisation on seed can be improved through more R & D on cotton oil and cotton seeds.
1.6.32. Considering that governments across the world are starting to action to reduce green house
emissions. For example the Australian Carbon Pollution Reduction Scheme is likely to cover cotton,
due to emissions from application of nitrogen fertilizer, release of carbon dioxide from biological
decomposition, methane from water logging, emissions from processing cotton etc. Therefore, careful


97
study is recommended so that a strategy for countering Carbon Emission Reduction Scheme can be
framed.
VIII. Recommendations towards Risk Management:
1.6.33. 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.
IX. Recommendations towards drawing lessons from policies of other
cotton producing countries:
1.6.34. A policy review of some of the cotton producing countries has been outlined in section 4.2 of this
report. Lessons could be drawn from policies in these countries that are pertinent to India and could
be suitably adopted. For example, the independent gradation certification system of total crop existing
in US could be studied and a similar system could be developed after suitable modifications.


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1.A. ANNEXURE
1.A.1. CASE STUDIES SPECIFIC PRODUCTION TECHNOLOGY AND
YIELD ENHANCEMENT PROGRAMMES RUN BY CITI-CDRA AND
SIMA-CDRA
1.A.1. Front Line Demonstrations (FLDs) under Mini Mission II of Technology Mission on Cotton are focused
on transfer of modern/improved cotton production technologies including farm implements/machinery
as well as improved cotton varieties and hybrids. FLDs helped farmers to increase yields and reduce
the use of pesticides and production cost significantly by demonstrating high yielding varieties and
hybrids suited for various agro-climatic conditions, approved transgenic cotton varieties, integrated
nutrient management (INM), integrated pest management (IPM) and application of bio-fertilisers.
Under this initiative, scientists receive feedback from cotton farmers, which subsequently help to
improve as well as disseminate of technology. CITI-CDRA (Confederation of Indian Textile Industry-
Cotton Development and Research Association) and SIMA-CD&RA (The Southern India Mills
AssociationCotton Development and Research Association) conducted various FLDs in state of
Rajasthan and Sothern India, respectively.
CITI-CDRA (Confederation of Indian Textile Industry-Cotton Development and
Research Association)
1.A.2. CITI-CDRA conducted 1200 FLDs on production technologies (PTs) for cotton and 3 FLDs on
integrated pest management in Banswara and Bhilwara districts of Rajasthan during 2008-09 with an
investment of Rs 27.5 lakhs for the FLD programmes on PTs, IPM and awareness programmes. The
total expenses as on January 31, 2009 were estimated at Rs 26.5 lakhs. The villages and the farmers
to be covered under the FLDs on Production Technology and IPM were selected by the Deputy
Directors of Agriculture (Extension), Banswara and Bhilwara districts.
1.A.3. These are following objectives of CITI-CDRA initiatives:
Transferring modern/improved cotton production and protection technologies among cotton
farmers by giving training to the farmers through organising field visits, arranging field days
and Kissan Melas and conducting Awareness Campaigns.
Demonstrating high yield High Yield Varieties (HYVs) and hybrids including approved
transgenic cottons (Bt. Cottons) suitable for various agro-climatic conditions prevalent in
Banswara and Bhilwara districts of Southern Rajasthan.


99
Increasing yield and reducing production cost (including pesticide cost) through INM, IPM,
application of bio-fertilisers and bio-pesticides and emphasis on water management and inter-
cropping system.
Promoting quality consciousness among cotton farmers via improved practices for picking of
kapas, its storage and transportation for marketing.
Improving the overall economic conditions of farmers
Production Technologies
1.A.4. The production technology and integrated pest management to be demonstrated at the above Front
Line Demonstration Villages were recommended / approved by the Agriculture Research Station
(ARS), Banswara attached to the Maharana Pratap Agriculture University, RCA Campus, Udaipur as
the concerned FLD villages of Banswara and Bhilwara districts fall within the jurisdiction of the
University. The technologies finalised and demonstrated in the FLD villages included the following:-
1.A.5. Production technologies (PTs) demonstrated in FLD
Sowing of BT Cotton and refugee crop.
Intercropping of Maize, Soya Bean, Pigeon Pea and Black Gram.
Ensuring proper plant population by adopting of gap filling to maximise yield.
INM including use of micro-nutrients - Zinc Sulphate, Planofix (NAM) including foliar spray.
Clean weed Free cotton cultivation including cleaning of borders.
Water management: Preparation of ridges and furrows at the time of last hoeing in-situ
moisture conservation of run-off excess rain water.
ETL (Economic Threshold Level) based pest and disease management
Checking flower and fruit shedding through harmon spray
Nipping of terminal 10th-12th node for arresting terminal growth.
Need based use of pesticides, including use of bio-pesticides
1.A.6. Technologies demonstrated in FLDs on IPM:
Keeping cotton fields weed free including borders by removing parthenium plants and other
alternate host plants.
Trap cropping with Okhra.


100
Installation of bird perches (at the rate of 2-3 per acre), pheromone traps for different boll
worms and yellow sticky traps for white flies.
Use of Bio-Agents (Trichogramma and Chryso Perla spp) and bio-pesticides (Neem Leaf
extract 10%, Neem Kernel extract 5% and Neem Oil 1%).
Pest Surveillance by the scouts at weekly interval by randomly selecting 10 plants from the
fields of each participating farmers and recording of observations
Clipping, hand picking and destruction of spotted boll worm larva in case of heavy infestation
Need based use of recommended chemical insecticides at recommended dose on ETL
Creating awareness among the cotton growers about the IPM Technology and its
dissemination to reduce pesticide consumption on cotton crop.
Strategy adopted for implementation of Programme:
1.A.7. In keeping with the guidelines issued by the Government of India, in the Ministry of Agriculture, to
introduce a more effective system to develop closer coordination with State functionaries, Panchayat
Raj Institutions, ICAR and SAUs Institutions, while implementing FLD Programmes both for P.T and
IPM, CITI-CDRA adopted a well thought out strategy, which inter-alia aimed at the following:-
a) Close coordination with the Agriculture Department of State at district level:
1.A.8. The Office of the District Deputy Director of Agriculture (Extension) was actively associated with the
selection of villages, the selection of beneficiary farmers in keeping with the guidelines for
implementation of Special Component Plan (SCP) for SC and Tribal Sub-Plan (TSP) for ST and
Gender Budgeting giving preference to Women cotton growers.
b) Involvement of Scientists from KVKs- Bhilwara, Banswara and ARS, Banswara:
1.A.9. The scientists from Krishi Vigyan Kendras of Bhilwara and Banswara and also Agriculture Research
Station of Maharana Pratap Agriculture University, Udaipur were invariably involved in Awareness
Programmes, Farmers Field Visits, Kissan Gosthis and Kissan Melas with a view to disseminate the
knowledge regarding new technologies of cotton crop management in general and effective pest
management in particular among the participating cotton growers.
c) Implementation Committee at District Level:
1.A.10. The District Level Implementation Committees were set up at Banswara and Bhilwara with the Deputy
Director of Agriculture Extension, Scientists from KVKs/ARS Bhilwara and Project Coordinator of the
CITI-CDRA as its members. The Implementation Committees met periodically to review the progress
of cotton crop in the district and made recommendations in respect of the inputs to be supplied to the


101
beneficiaries. Special emphasis was laid on the pesticides / fertilisers and bio-agents to be distributed
among the beneficiaries, on need basis and within the budgetary ceiling of Rs.1400/- per FLD. The
members of the implementing Committee were also associated with awareness programmes and
kissan melas.
Implementation of the FLD Programme
1.A.11. To supervise effectively and undertake continuous surveillance of the cotton crop, the CITI-CDRA
deployed Project Coordinator and required scouts at each district. The scouts were selected by the
implementation committees in the respective districts. They were given training by the scientists from
KVKs and ARS, Banswara, Officers from the Department of Agriculture, Scientists from Bayer Crop
Science, Mumbai and the Project Coordinators. The scouts were selected by the Project Coordinators
in consultation with the concerned Deputy Directors of Agriculture. All of them were provided with
magnifying glasses for conducting on the field survey/inspection of the fields of participating cotton
growers. In Banswara - 6 and in Bhilwara 9 training camps were conducted with the assistance of
the State Agriculture Officers by the Project Coordinators.
1.A.12. A Bench Mark Survey was undertaken of all the participating farmers to ascertain their cultural
practices, the economics of cotton cultivation, the usage of pesticides / insecticides, the yields
obtained, the varieties grown, etc to facilitate impact assessment of the project implemented in these
villages. Various inputs were distributed under FLDs in both the districts.
Results of execution of the FLDs on Production Technology:
1.A.13. The results of the FLDs on P.T. were very encouraging as would be evident from the following data:-
_________________________________________________________
Bhilwara District (800 FLDs)
Gain in terms of money in Bt. Cotton over the Local Varieties cultivated in Bhilwara District:-
1. Local Cotton Variety - Average Yield: 12.00 quintals/hectare;
(Projected by the Agriculture Department)
2. Bt. Cotton average yield in Non FLDs: 21.00 quintals/hectare;

3. Average Yield in FLDs: 28.35 quintals/hectare;


102
4. Farmer incurred extra expenditure for Bt. Cotton in terms of Rupees/hectare:-
a) Seed Cost Rs.3000.00;
b) Micronutrients, etc. Rs.1100.00;
c) Extra Labour charges Rs.2500.00
Total: Rs.6600.00
Other expenditures are common in both the cotton.
5. Saving of 4 Insecticidal sprays each costing Rs.750/-: Rs.3000.00
6. Extra expenditure on Bt. Cotton: (Rs.6600/- - Rs.3000/-) = Rs.3600/-;
7. Prevailing price: Rs.2850/- peer quintal
8. Gross Profit per hectare: a) Bt. Cotton= Rs.59850/-, b) Local Variety = Rs.34200/-;
9. Extra Gain over Local Variety: Rs.59850/- - (Rs.34200/-+Rs.3600/-) = Rs.22050/-;
10. Extra Gain in FLDs: (Rs.80797/- - Rs.37800/-) = Rs.42097/-;
11. Increase in the percentage in terms of Rs. Gain:-
a) In Non-FLDs: 158.3%, b) In FLDs: 213.7%
Exhibit 1.A.1: Bhilwara district (800 FLDs)
Yield Kg/Ha
Average yield (Seed cotton) in demonstration fields 945
Average yield in control fields 237
Last years average yield for the district Lint / Ha 237
Source: CITI-CDRA, D&B India







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Exhibit 1.A.2: Banswara district (400 FLDs)
Yield
Irrigated
(kg/ha)
Non-
irrigated
(kg/ha)
IT 905 (BT) (Demonstration fields) 495 359
DCH-32(local) (Check fields) 265 179
PCH 406 (BT) (Demonstration fields) 337 290
DCH-32(local) (Check fields) 237 194
Last years average yield in kg of lint per
hectare
340
Source: CITI-CDRA, D&B India
Summary of collaborative project Cotton Productivity Improvement 150%
implemented in Banswara district of southern Rajasthan, during 2008-09
1.A.14. CITI-CDRA is implementing a collaborative project for enhancing cotton productivity and production in
Banswara District in collaboration with State Government of Rajasthan and Bayer Crop Science,
Mumbai with an outlay of Rs.12.00 lakhs. The Project is targeted to enhance cotton productivity in the
district by 150% (from 470 kg/ha of lint to 605 kg/ha) in the next three years (at the end of 2010-11).
The Project is implemented in 9 clusters, covering 100 gram panchayats and 562 villages with an
area of 9,900 hectares and 24,500 cotton growers. It is proposed to extend the project area to 50,000
acres by covering Bhilwara and Rajsamand districts (covering further 25000 acres) during 2009-10.
SIMA-CD&RA (The Southern India Mills AssociationCotton Development and
Research Association)
1.A.15. SIMA-CD&RA is endeavours to supplement the efforts of central and state governments to improve
production, productivity and quality of extra long staple (ELS) cotton in the country. The main efforts
undertaken by SIMA-CD&RA include extensive development and research activities, popularising
location specific and cost effective production techniques at farm level in the states of Tamil Nadu,
Karnataka and Andhra Pradesh.
1.A.16. SIMA-CD&RA has also undertaken a project for restoration of Suvin with improved fibre properties,
stable yield and crop duration. There is an improvement in Suvin plant population has been noticed. It
has also initiated to maintain the purity and the fibre quality standards of DCH-32.


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1.A.17. Additionally, SIMA-CD&RA Identified and developed an early maturing variety SIMA-1 with a short
duration of 130 days is another land mark under the breeding work carried out by the association.
It has proved its superiority in yield over the existing variety, MCU-7 in the rice-fallows of Tamil Nadu,
where crop duration is a limited factor. Its fibre properties and spinning performance are at par with
MCU-7, the area under cotton in rice-fallows is expected to increase with the spread of SIMA-1.
1.A.18. SIMA-CD&RA had undergone 6 years of inter-specific hybrid (SIMA-HB-3) trial in Tamil Nadu,
Karnataka and Andhra Pradesh under All India Co-ordinated Cotton Improvement Project (AICCIP) -
South zone. These trials showcased below mentioned results.
Fibre properties of SIMA HB-3, particularly micronaire and strength are better than TCHB
213 and DCH-32.
Strength to length ratio is also better than TCHB-213 and DCH32.
Standard CSP value for carded 80s / 100s is better than TCHB-213 and DCH-32.
The U% and neps of the yarn 80s / 100s lie in Good category and better than TCHB-213
and DCH-32.
Suitable for drought situationSummer/Winter/Irrigated conditions. Purataasi pattam is highly
suitable for yield and quality as well. (Temp:32-40 degree Celsius day and 22 degree Celsius
night)
1.A.19. SIMA-CD&RA has been providing over 500 M. tonnes seeds annually in MCU-5, MCU-5 VT, LRA-
5166,MCU-7, LRK-516, Surabhi, Supriya, Suvin, SIMA-1, L-389 and hybrids such as Savitha, TCHB-
213, NHH-44 and HB-3, popularly known as SIMA Seeds. These seeds are popular not only in the
Southern States, but also in other States like Maharashtra, Madhya Pradesh, Gujarat and Orissa. The
following table furnishes the data on the seeds produced and distributed to the cotton growers and the
area covered.
Exhibit 1.A.3: SIMA-CD&RA: Seed production and distribution
Period Seeds distributed (M. tonnes) Area covered in hectares
1985-86 to 1989-90 966 1,26,226
1990-91 to 1994-95 2,037 2,74,624
1995-96 to 1999-2000 2,026 3,36,033
2000-01 to 2006-07 1,810 1,77,180
Total 6,889 9,14,063
Source: SIMA-CDRA, D&B India


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1.A.20. SIMA-CD&RA also identified many improved production techniques to reduce the cost of cultivation.
Studies conducted by SIMA-CD&RA showcased that application of bio-fertilisers (Azospirillum and
Phosphobacteria) on 21st day after sowing, increased 20% seed cotton yield and reduced the
fertiliser cost by 20-05%. Skip row planting was found to give 24% higher yield than normal planting
method besides saving 40-45% irrigation of water requirements. The trials on drip irrigation
showcased that it produced 50% higher yield over the conventional method of flood irrigation. All
these results have been incorporated into cotton cultivation for adoption by the cotton farmers in the
development scheme areas of SIMA-CD&RA.
1.A.21. SIMA-CD&RA continued to distribute bio-fertilisers (Azospirillum, Phosphobacteria and Rhizobium) as
a value addition along with seeds. Application of bio-fertilisers reduces the cultivation cost, usage of
fertilisers and minimizes soil pollution and saves the ecosystem. The following table depicts the
production and supply of bio-fertilisers to cotton producers.
Exhibit 1.A.4: SIMA-CD&RA: Production and supply of bio-fertilisers
Period Bio-fertilisers supplied in (M. tonnes)
1992-93 to 1994- 95 179.38
1995-96 to 1999-2000 144.95
2000-01 to 2006-07 64.22
Total 388.550
Source: SIMA-CDRA, D&B India



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1.A.2. COMPOSITION OF THE SUB-GROUP ON COTTON TO
FORMULATE NATIONAL FIBRE POLICY
S. No Name Designation
1. Shri J. N. Singh, Joint Secretary, Ministry of Textiles Convenor
2. Shri Shishir Jaipuria, Chairman, Confederation of Indian Textile Industry Co-convenor
3. Shri S.C. Grover, CCI Member
4. Shri D.K.Nair, Confederation of Indian Textile Industry Member
5. Shri Rakesh Vaid, AEPC Member
6. Shri vimal Kirti Singh, AEPC Member
7. Shri V.S. Velayutham, TEXPROCIL Member
8. Shri Siddarth Rajagoapl, TEXPROCIL Member
9. Shri Dhiren N. Seth, Cotton Association of India Member
10. Shri J. Thulasidharan, SIMA Member
11. Shri T. Kannan, Thiagrajar Mills Ltd. Member
12. Shri Suresh A. Kotak, Kotak & Co. Ltd. Member
13. Shri M. Senthil Kumar, Palladam Hi-Tech Weaving Park Member
14. Shri Manikam Ramaswami, Loyal Textile Mills Limited Member
15. Shri S.V. Arumugam, Bannari Amman Spinning Mills Ltd. Member
16. Dr. M.S. Mathivanan, PDEXCIL, Mumbai Member
17. Shri A.L. Ramachandra, Vijayeswari Textiles, Coimbatore Member




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