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Depleting forex reserves, rising interest rates to impact India’s cotton imports


Depleting forex reserves rising interest rates to impact Indias cotton imports


Despite a decline in international cotton prices over concerns of economic recessions, cotton prices in India increased 7.65 per cent from Rs 85,000 per candy on July 20 to Rs 91,500 per candy in early August. Pakistan’s cotton prices also surged 22.4 per cent to Rs 19,200 per maund during the same period. The rise in Pakistan’s cotton prices can be attributed to the strengthening of the US dollar against the Pakistani rupee.

Heavy rains affect new cotton crops

Heavy rainfalls lashed three major cotton producing areas in India in the second week of July, causing floods in major areas. This affected crops on 1.07 million hectare, as per a report by the Department of Agriculture. These mainly included cotton and soyabean crops. Not having planted cotton crops for two consecutive weeks, the Department of Agriculture is arranging subsidies for affected farmers.

Festive season to spur demand

The festive season from August till January is likely to spur local cotton demand. With zero restrictions, this festive season is expected to be different from the past two years this year, says Retailers Association of India. Already, retailers across India reported an average growth of 24 per cent in May this year compared to May 2019.

Rise in interest rates by the US is causing depreciation in the value of the Indian rupee. Also, energy prices have skyrocketed due to the Russia-Ukraine war leading to a decline in India's foreign exchange reserves. Data released by the Reserve Bank of India on July 29 shows, India’s forex reserves with the Reserve Bank decreased to $571.56 billion in July 22

New settlement rates hits cotton imports

As per the USDA’s weekly export report, US exports of upland cotton to India declined to 9 kt in 2022-23 from 113 kt in 2021-22. India’s foreign exchange reserve has gradually reduced and the country currently faces a deep trade deficit. To stabilize exchange rate, the Indian government introduced rupee international settlement rate, which further hit its cotton imports. New crops in the cotton market are yet to arrive and current production also remains uncertain. Cotton consumption in the domestic market has improved though it is unlikely to have any major effect on the global market.

Floods caused by heavy rainfall have affected main cotton producing areas across India. Status of new cotton planting has not been announced by the Department of Agriculture, causing further market concerns. Rising demand for cotton textiles and garments are driving up cotton prices further. However, the rapid decline in India's foreign exchange reserves has impacted cotton imports. In future, the US Fed is likely to again raise the interest rates further impacting India’s cotton imports.


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