The increase of 5% in cotton MSP for CYi2021 comes after a muted 2% increase implemented for CYi2020, which followed a significant increase of 26-28% announced for CYi2019.

The announcement by the Cabinet Committee on Economic Affairs (CCEA) on June 1, 2020, approving an increase in the minimum support prices (MSPs) for kharif crops (including cotton) for the Cotton Year 2020-21 augurs well for cotton sowing but is likely to be unfavourable for the domestic spinning sector.

While the MSP for the medium-staple variety stands increased by Rs 260 per quintal to Rs 5,515 per quintal, the price for the long-staple variety stands increased by Rs 275/quintal to Rs 5,825/quintal, translating into an increase of 5% over the level fixed for CYi2020 (refers to Indian cotton year, ending September 2020), said an Icra analysis on Friday.

The increase of 5% in cotton MSP for CYi2021 comes after a muted 2% increase implemented for CYi2020, which followed a significant increase of 26-28% announced for CYi2019. The hike is in line with the announcement made in the Union Budget 2018-19, to fix the MSPs at a level of at least 1.5 times of the all-India weighted average cost of production.

Commenting on the impact of the development on the sector, Jayanta Roy, senior V-P and group head, Icra Ratings, said: “The move is set to benefit the farmers on commencement of harvesting for the ongoing kharif season, from October 2020 onwards. It is a positive development for them and is likely to encourage cotton sowing, despite a fall in cotton prices witnessed in the recent months. However, the move may heighten challenges for the domestic spinning companies, as this comes at a time when the Covid-19 pandemic has resulted in severe demand-side pressures in the international textile markets.”

Increased MSP, timely onset of monsoon and expectation of normal monsoons augur well for cotton sowing in India. Although cotton sowing in key regions in the Western and Southern belts is yet to start in a meaningful manner, initial sowing patterns in the northern belt indicate higher acreage for the year.

Nevertheless, cotton crop remains highly vulnerable to pest attacks, and output/yield expectations remain contingent on these.

In this context, the locust swarm which entered India in mid-May 2020 and has hit several parts of western and northern India including Rajasthan, pose a looming threat for the crops as these insects feed on a large variety of crops.