Once a global leader, India’s cotton industry is currently facing a series of challenges that have a significant impact on production, exports, and the overall economy. India’s cotton exports is anticipated to decline reaching a 19-year low for the crop season (October 2022-September 2023) on poor demand from importing nations, largely driven by the economic downturn in US and Europe. Let’s explore the factors contributing to this decline and the potential consequences for the Indian cotton industry.

Contributing Factors

The decline can be attributed to the following factors:

Decreased Opening Stock & Price Gap: Partially, the cotton industry’s woes can be attributed to a drastic opening stock reduction. The Cotton Association of India (CAI) revealed that the opening stock decreased from 125 lakh bales in 2020-21 to 75 lakh bales in 2021-22, and further plummeted to a mere 24 lakh bales in 2023.This reduction along with increased demand from spinning mills across mandis of Punjab, Haryana, and Rajasthan, has resulted in Indian cotton prices consistently remaining higher than the international market. Consequently, the demand for Indian cotton has declined, with buyers opting for cheaper alternatives from countries like the United States, Australia, and Brazil.
Farmers’ Actions Impacted Exports: The decline in cotton exports has been influenced by the farmers’ practices as well. By withholding cotton arrivals, farmers have caused prices to stay elevated compared to the global market. Consequently, this has led to a decrease in Indian cotton export prospects. To enhance the situation, it is essential to tackle the factors contributing to these market imbalances.
Rainfall’s Regional Disparities: Although there have been heavy rains in North India, their impact on cotton fields has been relatively minor as it accounts for only 10% of the total cotton sowing area in India. Most (around 60%) of cotton is cultivated in Central India, while the remaining 30% is cultivated in South India. The regions primarily affected by uneven rainfall patterns include Gujarat, Maharashtra, Madhya Pradesh, Telangana, and Karnataka.

Market Outlook

Declined cotton production & exports pose a significant challenge to India’s economy. In 2023, cotton production is expected to reach its lowest point in 14 years, potentially turning India from a net exporter to a net importer of cotton. This shift could have wide-ranging consequences, affecting not only the cotton industry but also related sectors, rural livelihoods, and the overall economy. Urgent measures and support are required to revive and strengthen India’s cotton industry.

OFB’s Insight

India’s cotton industry is grappling with a range of challenges, including decreased production and exports, a significant price gap with international markets, and increased demand from spinning mills across various markets. These factors have contributed to a decline in the industry’s overall performance, leading to potential consequences for the country’s economy.Addressing these challenges requires a comprehensive approach, involving market reforms, farmers’ support, and improved agricultural practices. By taking appropriate measures, India can aim to revive its cotton industry, regain its position as a global leader, and ensure the prosperity of its farmers and economy in the long run.