Report Highlights:

India’s 2013/14 cotton exports are expected to reach 8.0 million 480 lb bales, unchanged from the previous FAS Mumbai estimated and 500,000 bales higher than the USDA Washington estimate. Exports through the end of February had climbed to 6.1 million 480 lb bales, 80 percent of the USDA estimate. Market arrivals continue to lag last year’s pace and have reached 21.8 million 170 kg bales. Farm prices remain firm, but spinning margins are strong pointing to continued strong consumption. The Government of India has applied two export promotion schemes to yarn and textile exports in an effort to support exports.

Arrivals Slower Than a Year Ago

As of February 25, cotton arrivals had reached 21.8 million 170 kg bales (17 million 480 lb bales/3.7 mmt) as reported by the Cotton Corporation of India (CCI). Daily arrivals are averaging around 210,000 170 kg. The pace of arrivals is around 10 percent slower compared to last year. Arrivals are particularly slow in the northern states of Punjab, Haryana, and Rajasthan where the pace of cotton deliveries to local markets is 30 percent behind a year ago. CCI is in the process of updating its historical arrival data to reflect the CAB’s larger production estimates which makes year-to-year comparisons more complicated than in the past, at least until the revisions are complete. Trade estimates of the crop in Northern India range from 4.8 million to 5.5 million 170 kg bales, compared to the FAS Mumbai estimate of 5.3 million 170 kg bales. Trade sources cite an increasing willingness on the part of farmers to hold cotton on farm in the hope of better pricing as the year progresses. Similarly, mills are maintaining smaller stocks of cotton, buying smaller volumes more frequently rather than fewer, larger purchases, in part because of the high rates of interest in India. Arrivals in Andhra Pradesh are also running significantly behind the year ago pace, but estimates of the all-India crop are largely unchanged over the past few months. For now at least, the estimate of 2013/14 production remains unchanged, but the pace of arrivals merits close monitoring over the next few months.

Exports Going Strong Thus Far

Exports have reached an estimated 7.8 million 170 kg bales (6.1 million 480 lb/1.32 mmt) through the end of February. The shipments constitute almost 75 percent of the FAS Mumbai export estimate of 10.2 million 170 kg bales (1.7 mmt/8 million 480 lb bales) and an even higher percentage of the USDA Washington export estimate of 7.5 million 480 lb bales. The pace of exports is expected to taper in coming months, how much will depend in large part on demand from China. Indian cotton is favorably priced relative to the Cotlook A index. FAS Mumbai still expects exports to reach of 10.2 million 170 kg bales (1.7 mmt/ 8 million 480 lb bales). Exports from December to February, traditionally months of heavy shipments, were primarily to China, Bangladesh, Vietnam, and Pakistan.

Amendment in Export Registration Procedure

On January 3, 2014 the Government of India issued a notification amending the procedure for the issue of registration certificates (RCs) for export of various commodities such as raw cotton and cotton yarn. The announcement simplifies the export registration process by eliminating the need for exporters to submit hard copies of the following documents when submitting their online export registration application: printout of the online application, letter of credit or Foreign Inward Remittance Certificate [FIRC] or proof of advance payment, and export contract.

Cotton Yarn Export Incentivisation

On January 23, the Government of India amended a notification that makes cotton yarn eligible for benefits under Incremental Export Incentivisation Scheme (IEIS) up to March 31, 2014, the end of the India fiscal year. The scheme provides a credit of two percent of the FOB value of exports that can be used to import any goods free of duty up to the value of the credit. The credits can be sold and transferred to other importers. The scheme was previously withdrawn in September of 2013. It is not clear if the scheme will be continued when the new fiscal year begins on April 1.

Textile Items added to Market Linked Focus Product Scheme (MLFPS)

On February 27, the Government of India amended a notification adding a number of textile items including cotton yarn, cotton fabric and bed linen to the MLFPS scheme. Here again, the scheme provides a credit of two percent of the FOB value of exports to certain high priority markets that can be used to import products duty free up to the value of the credit. The inclusion of certain textile products in the scheme will be effective March 1, 2014 through August 31, 2014. Further, all garments covered under Chapters 61 and 62 of the Harmonized Tariff Schedule that are exported to the United States and European Union are now eligible for program until further notice