A Study of Indian Government Policy on Production and Processing of Cotton: Implications for US Cotton Exports

Cotton is a very important commodity in Indian Agriculture. Recent technological advances and trade liberalization have made India a major player in international cotton markets. In the year 2009-10, India was the world’s second largest producer and third largest exporter of cotton (FAOSTAT). The increasing role of the Indian cotton sector in international markets is a direct challenge to the US cotton exports, especially in markets like China which account for 40 percent of the total mill use of cotton in the world. Within this context, a better understanding of the Indian cotton sector is needed to assess its competitive position in international markets. 

The overall objective of this paper is to assess the competitiveness of Indian cotton producers and potential implications for India as a competitor in the world cotton market.  The focus is on an updated estimate of the costs of production in India and representative farm models for cotton production in three important cotton production states (Gujarat, Maharashtra and Andhra Pradesh) of India. These models are utilized for understanding the impact of government policies like subsidies to various inputs on farm level profitability and ultimately on the competitiveness of Indian cotton in international markets. Rapid Rural Appraisal (RRA) methodology has been adopted to collect information, where in a multidisciplinary team conducted focus group discussions in various villages to get information and develop hypotheses. Another objective of this paper is to understand the value addition that takes place in the processing sector and impact of the recent policies of Indian government like promoting modernization of cotton mills. These policies along with changes in trade policies are expected to have an impact on cotton exports from India. The results are further used to understand the impact on US cotton sector and its competitiveness in the international markets.