The Cotton Corporation of India (CCI) will intervene in the market to build up reserves of 2.5 million bales of cotton. CCI will continue its commercial operations till new cotton starts arriving in the market in the new cotton season 2012-13.
CCI's intervention in the cotton market has been necessitated by the fact that the textile industry, already impacted by a slowdown in product demand, is unable to carry stocks beyond 15 days.
A sufficient cotton reserve is necessary to save small, labour-intensive textile units from intense competition by cotton exporters and large, cash-rich textile mills. Most of the mills are too small to stock up without loans. In the absence of cheaper and adequate funds, mills lose out most when raw material prices go up.
The mandatory carryover stock requirement, at 85 per cent production efficiency of textile mills, is 6 million bales. CCI is expected to purchase 1 million bales of cotton per month at the prevailing market price for the next two months.
CCI purchased around 11,000 bales of cotton at Rs4,400 per quintal from major mandis across Gujarat. At Monday's cotton price, the reserve will cost Rs4,180 crore. The proposal will be sent to the finance ministry for a detailed discussion and necessary approval.
The reserve will ensure raw material supplies to mills while also helping to stabilise prices in times of shortage.