New Delhi’s decision to ban cotton exports (to protect indigenous production) and subsequent supply contraction in the international market epitomises the machinations of slowing, post-recession, emerging Asia. The first spillover effect on Pakistan, considering resulting price distortions, will be a welcome bid in exports, which should be handled carefully, rather than lament violation of free market scruples. When the bulk of the international economy is in the process of bottoming out of a severe recession, protecting comparative advantage is paramount. It is simply foolish to expect authorities not to interfere in times of record quantitative easing.
One, India being the world’s second largest cotton producer and China the largest importer, Delhi’s supply crunch will push China to look for alternates. This should already have prompted the Pakistani commerce ministry to exploit a potential windfall opportunity. Two, ever since cotton prices crashed in the international market, following last year’s unprecedented price rise, Pakistan’s trade balance has come under immense strain. Combined with aid rollback and slowing growth, cotton depreciation was pushing Pakistan’s deficits into very dangerous territory. New demand-supply and price dynamics might just provide some face saving.
But even more importantly, the hazards of a narrow export basked must already be pretty apparent to relevant authorities. Just as rising prices often save the day for Islamabad, cyclical collapses run the risk of retarding the entire economic growth engine. As exports are apparently saved again, we must finally re-visit the trade regime very seriously, especially since our traditional export markets as well as products are increasingly compromised. Europe’s slowdown will keep meaningful export increases at bay, while a Chinese hard landing will erode much of the commodity’s international market demand. We must improve manufacturing and industry, and diversify our export mix. That is the only sure way of increasing profitability.
Too much hype of Indian cotton export is now evaporating. Indian export of cotton so far almost equaled to historic patterns of yesteryear's. China is sitting on huge strategic reserves. Overall supply and demand data has not seen any much fundamental change.
The fundamental problem with Pakistan exports has been well highlighted being a narrow export basket country. It requires careful planning and integrated efforts to develop alternate export products. Sadly, such vision is lacking all over; Islamabad, industry and exporters.
Comments are closed.