Monday, March 12, 2012

Cotton Export ban goes !! - alongwith it the Credibility


The very purpose of having a Sale contract (irrespective of whether it is ‘Incoterms’ or not) is to have defined terms of price, delivery, obligations, performance, documentations and the like.  Though most of these cast at the time of finalizing the sale contract between the Seller and the buyer, there could still be extraneous factors that can influence or determine the execution of non-execution of the contract – the most important of these being the Govt. regulations being in force from time.

So, in less than a week, the Indian reputation in cotton market has tumbled – seesawed but may never gain the credibility – the Govt. banned the export of cotton including the agreed performances but has now reviewed and gone back on its decision.  Not often, you can find Narendra Modi, Sharad Pawar and even Pakistani Commerce body speaking on the same wave length – that the ban was not right !!!  Yesterday, Commerce Minister Anand Sharma said - "Keeping in view the facts, the interests of farmers, industry and trade, a balanced view has been considered by the group of ministers to roll back the ban and a formal order will be made public on Monday by the government.”.  The Directorate General of Foreign Trade (DGFT), which is under the commerce department, had banned cotton exports on March 5 after a meeting of the committee of secretaries noted that carryover stocks of the cash crop had fallen below recommended levels.

It was not Narendra Modi alone, but also the allies of the ruling United Progressive Alliance which forced the Manmohan Singh government to take a step back, this time over the ban on cotton exports.  Sources in the government indicated that the ban revocation would come with some riders, and the guidelines accompanying the revocation were likely to be announced after a meeting of the Group of Ministers scheduled for March 23.  Now it is reported that the ban had been suggested not by the Textile Ministry but by a Committee of Secretaries. That is trying to state that  the Textile and Agriculture Ministries were not taken on board.

But is this way decisions impacting International Trade are taken ?  Why a ban in the first place and if right how it can change just because there is opposition.  Is it rank bad thinking, flawed announcement or week-kneed administration – perhaps all and something more !!   The ban on March 5 had taken all stakeholders by surprise, forcing domestic prices into a free fall and badly denting India’s image as a credible supplier. The decision to revoke the ban was taken by the GoM, headed by Finance Minister Pranab Mukherjee, on Friday, after a directive from Prime Minister Manmohan Singh to “urgently” review the decision.  “MPs from Gujarat had met the Prime Minister and senior MP Ahmed Patel, Leader of Opposition in Gujarat Shaktisinh Gohil, CPP president Arjun Modhwadia met me and discussed the issue,” Sharma said in his statement.

At that time  Sharma had called it a “well-considered decision”, taking into account “the trend of domestic consumption and depletion of domestic availability”.   Some  120 hours full of action, emotion, drama and double-speak have changed that all.   Explanations range from that of Congress strategy to undermine Gujarat chief minister Narendra Modi,  a much maligned and Nation harming one that a political heavy-weight punted on New York futures and as often quoted the ‘foreign hand’to the specious (exporters are hoarding cotton overseas).

In March 2010 also India imposed a ban on export of cotton – that time it was Dayanidhi Maran who was the textile minister !   This year, the textiles are in recession and farmers have gathered millions of bales.  The prices in the local market have been crashing down.   It boiled down to whether the Commerce Minister can execute a ban and whether the Agriculture Minister would protect the farmers’ interests !!!

It is not only the Government losing its  trustworthiness, think of the Traders who would have made some contracts at a higher price to support their earlier agreed upon contracts.   Gujarat CM Narendra Modi claimed that it is good for the farmers and the dubious policies of Central Govt only erode the credibility at International level.  At entirely different wicket, the All Pakistan Textile Mills Association (APTMA)  criticised India for banning cotton exports and termed it as against the international trade norms. It stated all cotton trade agreements, took place prior to the export ban, have been held back Indian exporters and dishonouring their commitments.

Perhaps the lesson learnt, it when you read a news of a move of the Government be it an announcement, a notification or a rule – better wait and watch rather than react immediately – for they could always be brushed aside as swiftly as they were introduced

With regards – S. Sampathkumar.

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