The Govt of India (GoI) proposes to increase MSP (Minimum Support Price) of cotton. While the MSP for medium staple fiber may rise by 39% to Rs 2500 per Quintal from Rs 1800 per quintal, that of long staple fiber prices will increase from Rs 2030 per quintal to Rs 3000 per quintal, a rise of 47%.

Minimum Support Prices (MSP) is fixed by GoI for the basic two varieties viz. J-34 (Rajasthan) and H-4 for every crop year. The MSP for other varieties are then fixed by the Office of the Textile Commissioner, Mumbai, depending upon quality differentials and market differentials of each other varieties from the two basic varieties.

MSPs of different varieties are fixed for FAQ grade kapas stipulating minimum quality parameters on staple length and mic value. Cotton Corporation of India (CCI) is a nodal agency of GoI, which resort to immediate market intervention and makes purchase of kapas at MSP without any quantitative limits as and when the prices of kapas of any variety touch the level of MSP. MSP and the market intervention by CCI prevents distress sale by farmers in a falling market.

Upto late 1990s and before the onset of globalization process, the occasions for MSP operations in the country were far and few as the domestic cotton prices normally ruled above the international prices. However, with globalization since 1998-99 and thereafter, the occasions for kapas prices touching the MSP levels have increased owing to domestic prices ruling in tandem with international prices.

The current market prices are significantly higher than MSP. Even then, the proposed hike in MSP can lead to further rise in the cotton prices putting the textile sector on further hardship. In The spot market, price of cotton long as on 27 Aug 08 was Rs 28040 per candy.