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Ginning mills located in the Malwa belt of Punjab, the traditional cotton-growing belt in north-western India, are in a catch-22 situation. Despite being situated near the source of cotton, they are running from pillar to post to buy raw cotton to run their factories.
High taxes in Punjab dissuade the farmers from selling their crop in the local market, as the tax structure is more conducive in neighbouring Haryana and Rajasthan.
Punjab, Haryana and Rajasthan grow the same variety of cotton (J-34), but a Punjab farmer earns Rs150-200 more per quintal by selling his crop in the mandis of Haryana and Rajasthan. About 6 lakh bales of cotton are diverted from Punjab every year by farmers in an effort to earn an extra buck. Punjab’s ginning mills purchase Punjab cotton from other states.
The bottlenecks in cotton availability have driven some ginners to relocate in towns of Punjab that are located on the borders with Haryana and Rajasthan.
The towns of Sirsa, Dabwali, Tatia in Haryana and Ganganagar, Sangria and Motilu in Rajasthan have flourished, as quite a few Punjab ginners have set up factories there to obtain raw material at viable prices and operate at optimum capacities.
The president of the Punjab Cotton Factories and Ginners Association, Bhagwan Bansal, told Business Standard that the high incidence of market fee (1 per cent), rural development fund or RDF (1 per cent) and Central sales tax (4.5 per cent) in Punjab results in an extra burden of 2.9 per cent on farmers. In Haryana and Rajasthan, a farmer pays a total tax of 3.6 per cent; in Punjab he has to pay 6.5 per cent.
Bansal said that Punjab once housed over 410 cotton factories, but the number is now less than 330. The exodus is continuous. Of greater concern, he said, is that these factories are able to operate at only 40 per cent capacity owing to non-availability of raw material.
Mega units in Punjab are exempted from market fee and RDF. Some of them buy directly from farmers, because their units are located in Himachal Pradesh, Madhya Pradesh and Uttarakhand. This creates further shortage of raw material.
Spinning mills located in the state are also affected, because they have to purchase cotton from a distant market, and this adds to logistics costs.
The managing director of the Vardhman Group, J L Sharma, acknowledged that they purchase over 50 per cent of their cotton (J-34) requirements from other states. The cotton is bought at a premium, as the cost of transportation is added.
The director of Cheema Spintex, Hardyal Singh Cheema, said that the strong truck union culture in Punjab makes business unviable, as it adds 40 per cent to the freight cost.
Ginners and spinners have left no stone unturned in persuading Punjab’s policy makers to safeguard the interests of an industry that is one of the largest employers in the state.
An assurance came last week from Deputy Chief Minister Sukbir Singh Badal, who has arranged a meeting with all stakeholders in December. If he accedes to the state’s ginning mills’ proposals, they may once again run at full capacity.