The proposed hike in MSP for crops, based on 1.5 times the A2+FL costs, in the case of rice and cotton especially, is likely to hit India’s exports considerably.
The proposed hike in MSP for crops, based on 1.5 times the A2+FL costs, in the case of rice and cotton especially, is likely to hit India’s exports considerably.
In the case of paddy, where the MSPs will rise by 13.5% due to the new formula, this will take the cost of finished rice to around Rs 26,651 per tonne. Once transport costs of 5% are added to this to take it to Kandla port, it becomes marginally more expensive than the existing global prices. If the rupee falls to below 67 to the dollar, on average for FY19, the competitiveness gets further eroded. Last year, India exported $7.8 bn of rice.
Matters are even worse in the case of cotton, where on average, prices will rise by a whopping 28%, from Rs 40,200 per tonne for kapas to Rs 51,600 per tonne. Given the conversion ratio of around 33%, this means the prices of finished cotton will rise to Rs 156,364 per tonne as compared to the current global price of around Rs 125,553 per tonne, based on a Rs 67 per dollar exchange rate.
At this price, India’s cotton exports will be hit badly, though the fact that the rupee is depreciating will cushion the fall a bit, says DK Nair, former secretary general of Confederation of Indian Textile Industry.
Since two thirds of all fibre used in India — both for local and exports market — is cotton, Nair says this will have a knockdown effect on exports of both textiles and readymade garments as well. India exported $19.3 bn worth of cotton, cotton-based textiles and readymade garments in FY18.
Gautam Nair, MD, Matrix Clothing, one of India’s largest garment exporters expressed the same fears.
“Garment exporters are already reeling under high yarn and dye and chemical prices. If, on top of that, the price of basic raw material (cotton) is raised substantially in 2018-19, it will have very, very significant negative impact on our apparel exports.”
IJ Dhuria, director (raw materials) at Vardhman Textiles, India’s largest spinning mill says raising the cotton MSP will benefit farmers and may not hit cotton exports too much immediately since China has slapped an additional 25% import duty on American cotton and the rupee has also depreciated against the dollar. If the import duty is reduced and/or the rupee corrects, he says, India’s cotton exports will be hit.
“Also, high raw material prices will erode the competitiveness of our textile and garment exports vis-a-vis competitors. It may prompt some players to explore the possibility of imports”, he added.

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