Gujarat grants bonus on cotton just before the state election
The Gujarat state chief minister Vijay Rupani, on 22 October, announced a bonus of INR500 per quintal on kapas procured by the government agencies from 1 November. This comes on the heels of Diwali festival and ahead of state assembly election.
The decision was taken to protect the interest of the farmers in Gujarat and to insulate them from adverse market forces. However, with bonus added the procurement price or the amount paid by the state government works out to INR 904-964 per 20 kg, while the prevailing spot rate at mandis in Gujarat is higher in the range of INR900-980 per 20 kg. Nevertheless, it is feared that as the marketing season, that began from 1 October, progresses spot rates will tend to fall as arrivals start picking up. Daily arrivals currently average 12,000-14,000 bales.
In Gujarat, cotton was cultivated over 27 lakh hectares during the 2017 kharif season and it is estimated to harvest around 505 lakh quintals (297 lakh bales of 170 kgs each).
The bonus of INR500 per quintal over and above the MSP declared by the chief minister will be granted by the state government. In this situation, it is likely that the government shall have to procure about 50% of the marketed stocks. This will entail an expenditure of INR1,250 crore to the state exchequer and INR10,675 crore to the central government.
The Slate Government in cooperation with the Cotton Corporation of India will procure cotton in Gujarat through 56 centres, of which, 40 will start operations from 1 November 2017.
In addition, there are considerable administrative and logistical expenditures for procuring and storing the cotton stock. Both, the state and the central government, will make additional financial arrangement and administrative provisions for increased procurement that will result from the additional incentive in form of Bonus.
