The currency ban in India has created a cash shortage that is affecting the cotton trade. With farmers seeking to sell their produce only in cash, the scarcity of notes has led to daily cotton arrivals declining by almost 50 per cent.

Farmers usually prefer cash for their produce and are not familiar with other forms of payments. Hence, due to demonetisation, traders and ginners are unable to make payments to farmers in hard cash.

The price of cotton has gained almost five per cent in the last two days. Demand from yarn mills has also declined by 30 per cent. Just as mill demand was picking up after a low cotton production in 2015-16, the shortage of cash has now affected the trade.

Most buyers are avoiding large purchases, which has led to a fall in demand from yarn mills. On the other hand, demand is higher than supply and cotton prices have gone up in the last two days and may continue to stay high till the situation normalises.

While the cotton industry has welcomed the move to demonetise currency notes of Rs 500 and Rs 1,000, it feels the cash withdrawal limit should be extended to Rs 2 lakhs to make things more convenient for the industry as a whole.