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India's state cotton purchases to plummet as Pakistan raises imports

India's state cotton purchases to plummet as Pakistan raises imports

MUMBAI: The Indian government's purchases of cotton are set to plunge 89 per cent in the 2015/16 marketing year as local prices have jumped after crop failures forced neighbouring Pakistan to raise imports from the world's biggest producer of the fibre.

The increase in shipments to Pakistan, Bangladesh and Vietnam will help India trim spending on cotton buys by nearly 140 billion Indian rupees ($2 billion) in the year that started on Oct 1, although the rise in volumes on the international market will cap recent gains in global prices.

“Prices have moved above the MSP (minimum support price) level in most states and farmers are selling to private players,” said B.K. Mishra, chairman and managing director of the state-run Cotton Corporation of India (CCI).

In a scheme to assist India's cotton farmers, the CCI buys raw cotton fibre from them at INR4,100 per 100 kilogramme, while in spot markets prices have risen to INR4,300 to 4,800.

In the year to Sept 30, India spent INR160 billion to buy 8.7 million bales at the MSP as top consumer China started slashing imports.

In the current marketing year, the government purchases were again expected to rise to last year's level due to poor demand from China. But a sudden increase in demand from Pakistan and a decision by India's top producing state Gujarat to buy from farmers at levels higher than the MSP boosted prices and reduced the need for state support.

Take a look: Pakistan helps cut India’s cotton glut

The government will likely spend just INR20 billion for procurement of 1 million bales this year, Mishra said.

“We have bought 700,000 bales so far, but henceforth we are expecting a slowdown in purchases due to rising prices.”

Spot prices of ginned cotton in India have risen nearly 5 per cent in a month to INR33,200 per candy of 356 kg.

“Demand is healthy for Indian cotton from Pakistan and other Asian countries,” said Dhiren Sheth, president of the Cotton Association of India, adding that prices could stabilise around the current level.

India has so far contracted 3.6 million bales for exports, including nearly 2 million bales to Pakistan, Sheth said.

Pakistan's overall cotton imports are seen climbing to at least 4 million bales in the year that started on Aug 1, from 1.2 million bales in the previous year due to an estimated 25 per cent drop in its own production.

India's cotton exports in the 2015/16 season are expected to rise 18 per cent to 6.8 million bales.

A drop in India's production due to a pest attack and the first back-to-back drought in nearly three decades has also been supporting prices, said Pradeep Jain, a ginner based in Jalgaon in the western state of Maharashtra.

A government body has estimated a 4 per cent drop in India's production in the current year. Traders are estimating a much steeper drop after floods hit cotton growing in the southern state of Tamil Nadu earlier this month.

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