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  • The domestic market: a micro view

    Chapter 6 - Market profiles - India

     
     
    Different players in the market

    The different players in the market comprise traders, commission agents and ginneries, most of which also trade in cotton. Nearly 85%–90% of cotton is marketed through these players, who procure raw cotton either from the market yards or direct from the villages, and then offer that cotton to the consuming mills. Across the cotton season, these players also build inventories in different proportions, depending upon their assessment of market demand and supply as well as expected prices. Government agencies such as the Cotton Corporation of India (CCI) also play an important role in stabilizing prices through timely market interventions.

    Imports of cotton by the user textile mills are indented through international sellers, working mostly through Indian agents. Importing mills rarely visit the country of origin when buying cotton; they depend on the services of agents for contract performance, including selection and shipping formalities.

    Specific cotton contracts used in the market

    Every market has its own terms and conditions. Local cotton associations have terms and conditions relating to weights, payment terms and quality disputes. Contract terms can vary from transaction to transaction, depending on demand and supply in the market.

    Cotton Trading Associations such as the East India Cotton Association (EICA) have standard contracts in place specifying qualitative, commercial and technical terms. The parties to cotton trade have the option of following standardised contracts for cotton transactions and commercial dealings. In practice, fully pressed cotton bales are sold and bought on verbal contracts in private trade. Written contracts are prevalent in public sector organizations.

    For example, under the EICA ‘Rules of Arbitration’, all parties wishing to make reference to EICA arbitration should include the following arbitration clause in writing in their contracts or agreements:

    ‘Any dispute or difference whatsoever arising between the parties out of this contract shall be settled by arbitration in accordance with the Statutory By-laws and Rules of Arbitration of East India Cotton Association. The award made in pursuance thereof shall be binding on the parties.’

    Any party to a dispute relating to a claim arising out of cotton transaction and/or any commercial matter relating to cotton between two or more parties in India or other than in India wishing to commence arbitration proceedings shall write to the Secretary, East India Cotton Association (EICA) for arbitration. The written request must be accompanied by the statement of the claim and facts supporting the claim, copy of the contract and appropriate fees. Arbitrator(s) to hear the dispute will be appointed by the Association after giving notice to the parties to the dispute. The place of arbitration is India. The parties can also request a fast track arbitration proceeding to decide the reference in a fixed time frame of one to two months or any other time not exceeding three months. The award announced by the arbitral tribunal is final. The tribunal makes no award unless the case of the party applying for the arbitration has been brought to the notice of the other party. Whenever there is more than one arbitrator, the award of the majority will prevail and be taken as the decision of the arbitral tribunal. The tribunal is supposed to decide the award within three months from the date of reference, subject to extension of such durations as may be decided by the Chairman, EICA. The parties have a right of appeal to the Board of the Association within 15 days in the case of parties in Mumbai, 20 days in the case of either of the parties being elsewhere in India, and 30 days in the case of either of the parties being elsewhere than in India, from the date of receipt of the award and subject to payment of appeal fees as laid down in the schedule of fees.

    Cotton finance and payment regulations

    Banks are the major source of finance for ginners and mills. Most of the Cotton supplied by trade to the textile mills is on credit terms for intervals ranging from 30 days to 90 days. The textile mills continue to make payments against past supplies and also enter into fresh transactions for future supplies. Many cash-rich mills buy cotton on an immediate payment basis, under which they can enjoy the benefit of competitive rates. For cotton imports, payment is made to the exporter by L/C.

    Use of e-commerce and ICT for procurement

    Being a traditional business, the use of e-commerce and ICT are still not popular in the cotton trade. It will take few years before Indian companies start using e-commerce for procurement.

    Consumer preference for specific fibre types and blending

    All types of cotton suitable for spinning 20s count to 120s count are available in India. Buyer emphasis is mainly on the quality of the cotton with respect to its prime parameters. Contamination-free cotton is definitely preferred. It is generally observed that consumer preference is for cotton garments over synthetic and synthetic blended garments, as cotton garments are more comfortable.

    The consuming textile mills have a preference for specific fibre types depending upon the count pattern of yarn they sell in the domestic or international market. For example, for producing 40s yarn, the mills use cotton varieties with different staple groups – 28 mm, 29mmand even 30 mm. For producing cotton yarn of export quality in superfine yarn counts of 60s and above, ELS cotton is used by Indian mills. Other fibre characteristics such as micronaire, strength and grade also make a difference when choosing any particular variety. 
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