Retailers remain shielded from India's cotton muddle

Today’s news that India has made a partial U-turn on its ban of cotton exports is less of a surprise than the initial halt last week, which always looked and felt poorly thought through. Fortunately for the UK clothing and retail trade, the effects of the latest Indian bureaucratic muddle have been limited so far. 

There seemed little logic to the cotton ban in the first place. India is, of course, concerned by the consequences of any spike in cotton prices for its domestic textile industry. China, meanwhile, is stockpiling Indian cotton and there is, no doubt, a reluctance to support Chinese industry over its own.

But all forecasts, up until the news last week, were pointing to a global surplus of cotton, whilst prices have been steady for some time now.

As one industry insider told me today, the ban was “out of the blue”.

In the clear light of day, the reaction to the ban was not as the Indian authorities intended. Not only has there been vocal opposition from the Chinese – yes they are competitors, but they also remain a key customer for Indian cotton - but a large domestic interest group, in the form of the growers, have reacted with anger too. Even the UK-based International Cotton Association warned that it believes the ban will have “serious consequences and a major, detrimental impact on world cotton trade.”

Interestingly for UK retail, those consequences have been muted so far, with the market seemingly unperturbed by the uncertainty. Prices of cotton jumped a little last week, but have settled back down again. British retailers will be breathing a sigh of relief given the tough choices they had to make around margins last time cotton prices spiked.

As with the fiasco that surrounded foreign investment in the Indian domestic retail market last year, the real impact has been a further loss of international credibility for Indian business.