India’s cotton output for the year is expected to be the lowest in eight years. Prices are expected to rise if El Nino weakens, exports increase and due to off-season demand. Higher prices will add cost pressure on the value chain, making yarn, fabric and apparel exports less competitive. The situation has been further aggravated by the appreciating rupee. Both higher cotton prices and the rupee movement are reducing international competitiveness of Indian value-added textile products. A stronger rupee will shrink revenues of exporters by lowering price realisation.

Prices in cotton futures market moved up seven per cent on reports of improving demand from China and domestic mills. India has already shipped around 6,00,000 bales to China since October. Indian traders have signed contracts to ship 8,00,000 bales of cotton to China as prices have rallied in that country. Moreover, cotton procurement by Cotton Corporation of India at minimum support price has also helped prices to cross Rs 21,000 levels.

China’s decision to impose 25 per cent import tax on cotton, in retaliation to tariffs enacted by the US, has allowed India to grab a bigger share of the Chinese market. The United States, the world’s biggest exporter of the fiber, has cornered the bulk of Chinese imports for at least a decade.