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Currency crisis impacts global cotton market

India is the world's largest producer of cotton and also the second largest exporter. The present cash crunch is leading to delays in sales of cotton and is creating shortages in the domestic market as well as reducing supplies to the global market, the International Cotton Advisory Committee (ICAC) said in its latest report.

The ongoing demonetization process, marked by insufficient supply of new currency notes of Rs 500 and Rs 1,000 notes, has resulted in reduced supply of cotton to the global market. Since much of Indian economy operates on a cash basis including payments to farmers, the present situation has led to delays in sales and shipments of cotton.

Due to the delay in Indian cotton reaching the global market, other countries may benefit from increased exports in the short term, said ICAC. It has predicted exports of India to fall by 34 per cent to 825,000 tons in 2016-17. However, it added that the effect of the currency crisis will be limited as it is likely to be resolved in the near future.

Exports from the US are projected to increase by 29 per cent to 2.6 million tons, remaining the world's largest exporter. The sizeable crop anticipated in Australia is likely to cause its exports to increase by 21 per cent to 750,000 tons. Exports from Burkina Faso and Mali, the sixth and seventh largest exporters, are expected to increase by 13 per cent to 295,000 tons and by 17 per cent to 255,000 tons, respectively, as a result of larger crops.

According to ICAC, cotton from these origins may replace some of India's exports if their crops reach the global market soon. Meanwhile, for the second consecutive season, Bangladesh is expected to be the largest importer of cotton in 2016-17 as its mill use continues to grow with imports expanding by 1 per cent to 1.4 million tons.