CCI boosts cotton procurement as prices fall below MSP; CITI proposes DBT scheme and stabilization fund for industry growth.
Acquiring around 70 per cent of daily arrivals, the Cotton Corporation of India (CCI) is set to purchase 25–35 per cent of India’s cotton production this season. This increased procurement comes as market prices dip below the Minimum Support Price (MSP), prompting government intervention.
India’s leading textile industry body, the Confederation of Indian Textile Industry (CITI) has proposed replacing the current procurement system with a Direct Benefit Transfer (DBT) scheme. This recommendation is a part of CITI’s suggestions for the Union Budget 2025–26, set to be presented by Finance Minister Nirmala Sitharaman on February 1, 2025.
Under the existing system, the government sets an MSP for cotton annually. When market prices fall below this rate, CCI steps in to purchase cotton directly from farmers at the MSP. The cotton is then stored in warehouses before being sold through open markets or auctions.
CITI’s proposed DBT scheme would allow farmers to sell cotton at prevailing market prices. If the selling price is below the MSP, the government would transfer the price difference directly to farmers’ bank accounts.
This approach would increase liquidity for farmers, enabling them to sell their produce without relying on government procurement. Additionally, it would reduce CCI’s financial burden and storage costs, benefiting the entire cotton supply chain.
So far this season, CCI has acquired 55 lakh bales of cotton, with total purchases expected to reach 100 lakh bales - accounting for over 35 per cent of the estimated output of 302 lakh bales (170 kg each). However, CCI’s aggressive buying has limited access to cotton for textile mills, which may face further difficulties as arrivals decline.
CITI has urged the government to ensure adequate cotton availability at globally competitive prices. Domestic cotton prices currently exceed international rates. CITI suggests compensating CCI for losses through subsidies, akin to those offered for other commodities.
To address price volatility, CITI recommends introducing a Cotton Price Stabilisation Fund Scheme. This initiative would offer mills 5 per cent interest subvention or loans at NABARD rates, recognizing cotton as an agricultural commodity.
Additionally, banks should extend the credit limit period for cotton procurement from three months to eight months, with a reduced margin money requirement of 10 per cent instead of 25 per cent.
These measures would enable mills to secure raw materials at competitive rates early in the season and mitigate price fluctuations during the off-season. Improved financial stability and access to cotton would allow mills to plan production schedules more effectively, fostering growth in the textile industry.
