India Intelligence Report

   Textiles Gearing Up, Cotton Bear Hugged


In a proactive move, the Government is preparing a series of measures that will benefit the Textiles industry and remove clogs to increase its competitive against the Chinese when trade restrictions on China will be lifted by 2008.

Among the slew of measures to be presented to a Group of Ministers (GoM) will be:

-- Duty free import of furnace oil for textile units in pre-identified clusters
-- Continue with the Additional Excise Duty regime instead of value added tax to avoid complex calculations of various inputs at different stages
-- Treating textile industry as a public utility service to enable equitable handling of industrial disputes
-- Flexibility in labor laws covering textile export units including a 100-day minimum employment guarantee by industries
-- Raise weekly work rate to 60 hours that will provide flexibility for overtime but also protect laborers from over-exploitation

While these positive steps are being considered, a bear market is eclipsing the raw cotton market. The Government projects a 24.25 million bales (1 bale = 170 kilograms) of cotton production and that productivity per hectare has risen from 399 kilograms to 463. Experts say that the availability of lower cost cotton from the United States has cornered most export market -- primarily China. With that country buying cheaper American cotton and not releasing new orders, there is an excess supply causing sluggishness in the market.

The Government should provide more incentives for value-added exports instead of raw material exports as this will provide a higher yield. Therefore, it should urgently provide major incentives for new ventures in cotton producing areas to absorb cotton and export yarn or finished materials.

In a related story, the US biotech major Monsanto took the Government to the Supreme Court after a Commission on Monopoly ruled that the company was engaging in monopolistic practices and hindering equitable growth of biotech altered cotton seeds. After exhaustive investigation, the Monopolies and Restrictive Trade Practices Commission (MRTPC) found the company guilty of forcing licensee companies to sell 450 grams of BT cottonseeds at Rs. 1,800 when the same seeds are sold in China, Brazil, Australia, and the US at Rs. 90 per kilogram. The company claims that its seeds fights common pests resulting in higher yield and has not answered why is charging the Indian farmer more when it is charging lower in comparable markets. 

This is a trend that the Government needs to guard against. Lax legislation, weak implementation of the law, and undue deference to foreigners in India has allowed unscrupulous multi-nationals to exploit the Indian public. There is a high presence of pesticides in Indian version of Pepsi and Coca-Cola, higher degree of food contamination in Indian varieties of animal feed, etc. 

If Monsanto is found guilty, the Government should enforce a very high fine on it so other unscrupulous multi-nationals may think seriously about violating Indian laws.