Fitch Reports That Rising Cotton Prices May Weaken India'S Export Earnings Growth

"Despite the improvement in export demand in key markets (the US and Europe), the rupee appreciation has weakened the competitive advantage of India's garment exporters," the agency said in a report.

In November 2010, India's clothing exports decreased by about 3% to 716 million US dollars, mainly due to the weakening of western demand and increased investment costs.

Last year, the rupee appreciated about 5% against the US dollar.

Today rupee closed at 45.58 rupees against the US dollar.

The report added: "in addition, the increase in input costs also puts pressure on exporters' profits."

The agency expects cotton prices to remain high this year due to the imbalance in global supply and demand and untimely rainfall in India's main cotton producing countries.

Fitch said the restrictions on the export of natural fibers also had an impact on cotton prices this year (October -9).

Because of the rising cotton prices, the India government announced that the number of fibre exports should not exceed 5 million 500 thousand bales this year (170 kg / bag).

Over the past 10 months, cotton prices have risen by more than 80% over the same period last year.

At present, the price of natural fibers is about 40000 rupees / candy (365 kg).

The report further points out that prices of yarns and synthetic fibers have also stepped up, as they are used as a substitute for cotton this year.

In addition, the government has strictly restricted the export of cotton yarn in the financial year to 720 million kilograms.