CHAPTER-1

INDIAN TEXTILE INDUSTRY

• Textile accounts for 14 % of India’s industrial production and around 27% of its exports
earnings. Textile industry in India covers a wide gamut of activities ranging from production of
raw material like cotton, jute, silk and wool to provide high quality products such as fabrics and
garments to consumers.
• Man made fibres account for around 40% share in a cotton dominated Indian textile industry.
India accounts for 15% of world‘s total cotton crop production and records largest producer of
silk.
• Industry uses a wide variety of fibres ranging from natural fibres like cotton, jute, silk and wool
to man made fibres like polyester, viscose, acrylic and multiple blends of such fibres and
filament yarns.
• Textile industry plays a significant role in Indian economy by providing direct employment to an
estimated 35 million people, by contributing 4% of GDP and accounting for 35% of gross export
earnings. Textile sector contributes 14% of value addition in manufacturing sector.
• It is the second largest employer after the agriculture sector in both rural and urban areas. India
has large pool of skilled labour, experienced in technology skills.
• Almost all sectors of textile industry have shown significant achievement. Sector has shown a
3.66% CAGR over the last five years.

SEGMENTS OF INDIAN TEXTILE INDUSTRY

1. Woollen Textile
2. Cotton Textiles
3. Silk Textiles
4. Readymade Garments
5. Jute And Coir
6. Hand-Crafted Textile Like Carpets
7. Man Made Textiles

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 Indian textile industry in a very short span had made a distinct position globally, alluring the
globe towards the ‘World of Indian textiles’.
It’s not just the present that is shinning like a bright start but also the future, as the textile export
market of India is expected to reach a high of $50 billion by 2010. This will eventually make a
profit by 300%. In order to attain this target Indian textile industry has already started improving
their design skills, including a combination of various fibres. Indian textile industry is all set to
meet international standards and is planning to invest $5 billion in machineries very soon.
Most of the international brands like Marks & Spencer, JC penny, Gap have started procuring
most of their fabrics from India. In fact, Wal-Mart, who had procured textile worth $ 200 million
last year, intends to procure $ 3 billion worth of textile this year. The golden phase of the Indian
textile industry has just begun where the world is chasing it from all nooks and corners.

Indian Textile Industry: Changing Profile

The Indian textile industry has embarked on an ambitious programme of modernization and
technological up gradation in recent years to transform the textile sector from a state of low-
technology level to a producer of high-technology products. Technological up gradation in India
has resulted in -
○ A shift from commodity-based trading to high value-added fashion garments.
○ Vertical integration and horizontal consolidation of production process leading to lowering of
manufacturing costs.
○ Improved productivity gains.
○ Efficient supply chain management.
○ Development of economies of scale.

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 PROBLEMS FACED BY INDIAN TEXTILE INDUSTRY

• The Indian textile Industry had been plagued by obsolescence, labour problems, raw
material vagaries and lack of modernization including that of spindles.
• The post fabric stage processing technology has also been lagging but is now coming up
fast with infusion of textile processing technology.
• SSI firms perform the majority of weaving and processing operations. The level of
weaving technology is of lower order and knitting units don't possess capacity to
perform dyeing, processing and finishing to international standards.
• Textile exports during the period of April-February 2003-2004 amounted to $ 11,698 million as
against $11,142 million during the same period, showing increase of around 5 percent.

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 1.2
CURRENT SCENARIO
• The global economy is passing through recession. The international trade in textiles and clothing
reached to $583 bn in 2007, which is expected to decline by $20-25 bn in 2008.
• The Indian textile industry exports about 40% of its output, of this about 60% is destined to USA
and EU markets.
• It is expected that the textile and clothing exports from India may decline by 10-15%, although
countries like China, Bangladesh and Vietnam are expected to record growth in their textile
exports
• Steep rise in MSP of cotton and incentives on export of cotton have seriously impacted the
textile industry
• During the past few years, Indian textile industry has attracted huge investments. As a result, the
capacity in the entire chain has expanded beyond the current demand. In the context of declining
economic activities, even the domestic market is not able to absorb the surplus generated by the
industry so, it is tough time for the industry.
• The industry therefore has to strengthen its competitiveness to realize the Vision of $50bn textile
exports set out in the National Textile Policy 2000.

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CHAPTER 2
2.1 ABOUT VARDHMAN
Vardhman, a household name in northern India, has carved out a niche for itself in the textile
industry. The vardhman group was set up in 1962 by Late Lala Rattan Chand Ji Oswal, Father of
present Chairman and Managing Director, Shri S.P. Oswal. The group portfolio includes
manufacturing of yarns, fabrics, sewing threads, fiber and steel.
The industrial city of Ludhiana, also known as “The Manchester of India” nestles the corporate
headquarters of Vardhman group.
The group started its journey with an installed capacity of 14000 spindles in 1965 in Ludhiana.
Over the years the group has expanded its spinning capacities besides adding new business. The
group is now one of the largest conglomerate in the country with a turnover of about Rs. 2700
crores (2007-2008). The group has also diversified into yarn processing, weaving, sewing thread,
fabric processing, acrylic fiber manufacturing and special/alloy steels. Today, close to 23000
people is the organization’s most important asset- its human capital.
The group presently(2007-2008) has 19 manufacturing locations, spread across 5 states, with an
installed capacity of 7.25 lakh spindles (expandable to 8.5 lakhs by the year 2009-2010), 3408
rotors, 810 air jet looms (expandable to 900 by year 2009-2010), 33 tons/ day processing facility
for sewing threads, 63.5 metric tons/ day yarns and fibers dying capacity, 82 million meters/
annum processing facility, 18000 tons / annum production capacity for acrylic fiber and 1 lakh
tons / annum of steel capacity.
The company also has a strong presence in various countries like Japan, Hong Kong, Korea,
U.K., and E.U. in addition to the domestic market. Vardhman is earning laurels by exporting
yarn and fabrics of international quality to several countries in the west, Africa and the far east,
earning valuable foreign currency for the country, Vardhman is the first organization among the
textile industries to receive the ISO 9001/ ISO 14000 quality awards in India.Today the
Vardhman group comprises 3 listed and 2 unlisted companies-

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Listed Companies
- Vardhman Textiles Ltd. (formerly Mahavir Spinning Mills Ltd.)
- Vardhman Acrylics Ltd.
- Vardhman Holdings Limited (formerly Vardhman Spinning and General Mills Ltd.)

Unlisted Companies
- VMT Spinning Company Ltd.
- Vardhman Yarns and Threads Ltd.

COMPANY PROFILE
Registered office/ corporate office:
Date of incorporation:
Listings on Stock Exchange:
Chandigarh Road, Ludhiana (PB.)
27 December, 1962
Bombay Stock Exchange, Bombay,
National Stock Exchange, Mumbai
Ludhiana Stock Exchange Association Ltd.

TOP MANAGEMENT

Chairman & Managing Director Mr.S.P Oswal

Managing Director,VYTL Mr.D.L Sharma
Managing Director, VAL Mr.B.K Chowdhary
Executive Director,VTL Mr.Sachit Jain

President & Director(Incharge Mr.I.M.J.S Sidhu

Baddi Operations)

CE(Operations)Yarn Mr.Neeraj Jain

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 DEPARTMENT HEAD OF THE
DEPARTMENT
Corporate MIS Mr.Neeraj Jain
Finance & Accounts,Taxation & Mr.Rajeev Thapar
Secretarial
Raw Material Mr.I.J. Dhuria
EDP & IT Mr.Z.S. Chowdhary
CMY & HR Mr.Maheah Arora
Export Mr.Kupleep Jain
Projects & Purchase Mr.D.S. Kalra
Internal Audit Mr.Deepak Sood
Law & Commercial Mr.Rajesh Chopra

FUNCTIONAL DEPARTMENTS HOUSED IN CORPORATE OFFICE

BANKERS OF THE GROUP

• Allahabad Bank
• State Bank Of India
• Bank Of America
• ICICI Bank Ltd.
• Canara Bank
• State Bank Of Patiala
• Standard Chartered Bank
• Deutsche Bank
• Axis Bank

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 2.2 VARDHMAN’S VISION

 To be globally recognized
as a Leading Supplier of
Quality Products"

S P Oswal, Chairman-
Vardhman Group

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 MISSION STATEMENT

Vardhman aims to be the world class Textile organization producing diverse range of products
for the global Textile market. Vardhman seeks to achieve Customer delight through excellence in
manufacturing and customer service Based on creative combination of state of the art technology
and human resources. Vardhman is committed to be a responsible corporate citizen. The mission
of the Vardhman Group can be summed up in a single line i.e.
“BEING WORLD CLASS SPINNERS BY PROVIDING HIGHEST QUALITY PRODUCTS
WITHIN MINIMUM COST”.

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 2.3 LOGO OF VARDHMAN GROUP

The “Flame” signifies growth i.e. growth of the company along with the growth
of each and every individual associated with it whether he/she is a worker , a
white collar employee, a shareholder or a customer
.
The “Stick” symbolizes cotton that is the basic raw material of the core product of
Vardhman Group.

The “V” stands for the Vardhman Group.

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2.4 CULTURE AND ITS ASPECTS

• Professionalism
• System Approach
• Commitment To Quality
• Excellence With Economy
• Cost Consciousness
• Human Resource Regarded As Valuable Asset
• Emphasis On Teaching and Development
• Preference To Human Value
• Management By Participation
• Open Door Policy In Sharing Ideas And Suggestions
• Group Synergy
• Emphasis on effective communication and coordination
• Managerial strength and acceptance to change
• Cordial Environment
• Customer Focus
• Honour And Reward

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 2.5 GROUP PHILOSOPHY

The Vardhman Group has always emphasized on total customer focus in all operational areas. It
has continuously monitored and nurtured relationships with all the customers and business
associates.

VARDHMAN BELIEVES IN:

➢ The fact that ‘change ‘is a way of life.
➢ Absolute market orientation for a quick and positive response to the customer’s needs.
➢ An uncompromising commitment to a flexible, professional and personalized service from
within a stimulating result oriented environment.
➢ Delivery to a constant standard and on time.
➢ Response approach to the benefits of R&D and the modern technology.
➢ Having faith in individual potential and respect for human values.
➢ Being a responsible corporate citizen with due respect to the laws of the land and its
environment.
➢ Product to be the best available quality for premium market segment.
➢ These underline the corporate philosophy, which has shaped VARDHMAN OF YESTER
YEARS into VARDHMAN OF TODAY.
➢ Encouraging innovation for constant improvement to achieve excellence in all functional areas.

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2.6
PRODUCT RANGE OF THE GROUP

Yarns
The constant endeavour to excel has transformed Vardhman into being the country’s largest
manufacturer and exporter of cotton yarns from India.
Catering to the diverse requirements of the local and global clients, Vardhman offers a wide
range of specialized grey, dyed and a variety of blended yarns in cotton, polyester and acrylic.
Technical tie-ups with the world class leaders from Switzerland, Germany, Japan and Korea
have provided state-of-the art machinery that has ensured a range of products admired across the
globe for their impeccable quality and service.

Latest technology, sourced from best available around the world, combined with dexterous hands
has made Vardhman a “Super Market of High Quality Yarns”
1994 was another milestone towards its mission to supply quality products. Vardhman further
improved the value addition to its existing range of tops, fiber dyed and cone dyed yarns.

This was result of new phenomena that emerged on the horizons of Vardhman and also of Indian
Textiles. A fully integrated dyeing plant was commissioned with technology from Nihon Sanmo
Dyeing Co. Ltd., Japan, the leader in dyeing technology in the world. It has a capacity of
processing 22 tones fiber/tops and 10-tonnes of yarns per day.
Today Vardhman Group has over 50 tones of dyeing capacity per day, spread over various
plants.

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Sewing Thread and industrial thread

Vardhman is the second largest producer of sewing thread in the country next to Madura coats Ltd.. The
sewing thread manufacturing capacity is being expanded from present 17 tons per day to 22 tons per day
in its sewing thread plants located at Hoshiarpur, Baddi and Ludhiana. Sewing threads contributes 12
percent of the group turnover. It also manufactures high quality “specialty threads” at its unit in Baddi.

Weaving

Continuing its onward march on the value curve, Vardhman group entered weaving business in
1992 with a capacity of 7 million meter per annum. This capacity has been subsequently
expanded to 25 million meters per annum. The group has already made its mark as a quality
producer of grey poplin/ suiting/ shirting in the home market and has also entered the highly
competitive export market within this short span, now exporting fairly large volume of its
production.

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Fabric

Vardhman’s recent entry into grey fabric weaving at Baddi (H.P.) commissioned in mid 1992
with a capacity of 70,000 meters per day. It has already made its mark as a quality producer of
grey poplin/suiting/shirting in the home market and also entered the highly competitive export
market within a short span, now exporting 90% of the production of Auro Weaving, the weaving
unit at Baddi. The group has initiated further forward integration by setting up a fabric
processing plant at Baddi. This plant Auro Textile has a capacity of processing 70,000 meters of
fabric everyday.

Fibre

Vardhman ventured into the manufacture of acrylic fibre in 1999. The joint venture, VAL, was
set up together with two leading Japanese business houses namely Japan Exlan Company Ltd., a
part of Toyobo group of Japan & Marubeni Corporation, Japan. It has a manufacturing
capacity of 18000 MT per annum at Jhagadia, Gujarat in Western India. The products are
marketed under the brand name VARLAN. ‘Varlan’ fibre has acquired Indian Market for its use
in a wide variety of applications such as Hand Knitting Yarns; Machine knitting yarns for
blankets, jerseys, sweaters, saris, dress material, upholstery, furnishing fabrics, velvets, Carpets
etc. The Group is one of the largest consumers of Acrylic Staple Fibre in India.

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Special Steel

The steel business was setup in 1973 as diversification with a capacity of 35000 mt per annum.
Later on group acquired a steel plant from Mohta Group of Industries (now known as Vardhman
Special Steel) in 1986 and converted this loss making unit into a profitable business in first year
of operation with the group. Subsequently the steel mill has been modernized and expanded to a
capacity of 1.80 lacs mt per annum. Catering to high technology quality conscious alloy steel
segment, the unit has a reputation of being a dependable source of supply of special and alloy
steel to Indian/International standards.

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2.7
GROUP UNITS
SPINNING BUSINESS (Y)
Unit Location Product
range
Vardhman Spinning Ludhiana, Cotton
& General Mills Punjab blended,
acrylic, HKY
Cotton
Auro Spinning
Baddi, HP blended, fibre
dyed yarn
Cotton,
Arihant Spinning Malerkotla,
blended,
Punjab
melange yarns
Arisht Spinning Cotton,
Baddi, HP
blended yarns
Auro Dyeing Yarns and
Baddi, HP
fibre dying
Anant Spinning Mandidee Cotton ,
p, MP blended yarns
Vardhman Spinning
& General Mills
(Export Oriented Baddi, HP Cotton yarns
Unit)

VMT Spinning Co.

Ltd. Baddi, HP Cotton yarns

Satlapur, (partly
Vardhman Yarns
MP commissioned)

FABRIC BUSINESS (C)

Grey poplin,
Auro Weaving Baddi, HP Sheeting and
shirting
MSML Textiles Division Baddi, HP

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 Fabric
Auro Textiles Baddi, HP
processing
Budhni,
Vardhman Fabrics MP
(upcoming)

SEWING THREADS BUSINESS (ST)

Sewing
Hoshiarpur, threads and
ST-I
Punjab industrial
threads
Sewing
Ludhiana, threads and
ST-II
Punjab industrial
threads
Vardhman Threads Industrial
Baddi, HP
Limited threads

VARDHMAN SPECIAL STEELS BUSINESS (S)

Special
steels, alloy
Ludhiana,
Vardhman Special Steels steels, low
Punjab
carbon
steels

VARDHMAN ACRYLIC BUSINESS

Bharuch Acrylic
Vardhman Acrylic Ltd
(Gujrat) fibre

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2.8 BUSINESS PORTFOLIO

Vardhman group has its presence in various businesses as yarns, hand knitting yarns,
sewing threads, fabrics, and Special steel.

Share of each business in group turnover at the time of establishment

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 Year of establishment and market position:

Product Year of Establishment Market Share (in %)

Yarn 1965 48.3
Steel 1972 13.96
Sewing Thread 1982 12.60
Fabric 1992 16.74
Fibre 1999 8.47

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Business turnover yearly (Values in Crores)

Product wise turnover (2006-2007) (Value in Crores)

1400 1252
1200

1000
800

600
408
400 310
262 228
200
0
Spinning Fabrics Steel Fibre Sewing
Thread

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2
MANUFACTURING AND DISTRIBUTION NETWORK

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 MARKET POSITION
➢ Largest Spinning capacity in India - over half a million spindles.
➢ Largest producer of Cotton, Synthetics and Blended yarns in the country.
➢ Largest Dyeing Capacity of Fibre and Yarn.
➢ Largest Exporter of Cotton Yarn.
➢ Market Leader in Hand Knitting Yarns in India.
➢ Largest range of Textile products.
➢ Second largest producer of Sewing Thread in the country.
➢ Collaborations with specialist worldwide.
➢ ERP (Enterprise Resource Planning) enabled solutions for online order tracking

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 2.9 ACHIEVEMENTS & MILESTONE

Back home, the Vardhman Group became India's first textile company to be awarded ICO9002/
ISO 14002 Certification. It is the largest producer and exporter of yarns and Grey woven fabrics
from India. Vardhman is also the largest producer of tyre cord yarns and the second largest
producer of sewing threads in India. The Vardhman Group vision of excellence is matched by a
dedication and sincerity to be the best and excel in every industry it has a presence.
➢ 1989-90: State award for outstanding performance in exports.
➢ 1990-91: Bronze trophy third largest mill yarn exporter.
➢ 1991-92: Bronze trophy for third largest mill yarn exporter. Government of India Award for
outstanding export performance.
➢ 1993-94: Gold trophy for largest merchant exporter of yarn. Golden trophy for merchant of yarn
to non-quota markets. Government of India award for outstanding export performance.
➢ 1994-95: Gold trophy for largest merchant exporter of yarn.
➢ 1995-96: Outstanding export performance award.
➢ 1996-97: Silver trophy for highest performance in exports.
➢ 1997-98: Texprocil bronze trophy for third highest export in 100% EOU
➢ 1998-99: Texprocil silver trophy for second highest exports in EOU.
➢ 2002-03: Texprocil gold trophy for second highest exports in EOU.
➢ 2004-05: State award for outstanding performance in exports.
➢ 2005-06: Bronze trophy third largest mill yarn exporter.
➢ 2007-08: Silver trophy for second largest mill yarn exporter. Government of India Award for
outstanding export performance.
➢ 2008-09: Gold trophy for largest merchant exporter of yarn. Golden trophy for merchant of yarn.
Government of India award for outstanding export performance.
➢ 2008-09: Texprocil gold trophy for highest exports in cotton yarn category.

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 2.10 CORPORATE OFFICE
Vardhman has a modern centrally air-conditioned multi stored corporate building that serves as
the original place from where all strategies, policies, programs, rules and regulation take shape.
The corporate building houses the offices of the top bosses including chairman cum managing
director, executive director, corporate general manager and corporate vice president of the
various functional areas. The other facilities at the corporate office include meeting rooms,
boardroom, conference halls etc.

DIFFERENT DEPARTMENTS OF VARDHMAN

• Corporate HR and Personnel Department.
• Corporate Exports Department.
• Corporate Finance and Accounts Department.
• Corporate Taxation Department.
• Corporate Central Marketing Yarn Department

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• Corporate EDP & IT Department.
• Corporate Internal Audit Department.
• Corporate MIS Department.
• Corporate Projects and Planning Department.
• Corporate Raw Materials and Purchase Department.
• Corporate Secretarial Department
• Corporate Commercial Department
• Corporate Law Department

2.11 ORGANISATIONAL HIERARCHY

3. SWOT ANALYSIS OF THE VARDHMAN GROUP

STRENGTHS
➢ Good Brand Equity
➢ Good technological base with Foreign Collaboration
➢ High Quality Standards
➢ Increasing Production Capacity
➢ Own Research and Development department

WEAKNESSES
➢ Comparatively high prices
➢ Lesser degree of promotional activity
➢ Long Hierarchy
➢ Susceptible to fluctuations in cotton

OPPORTUNITIES
➢ As quality is good and prices are comparatively high, Vardhman can always easily liquidate
stock pressure by slight reduction in prices.

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➢ Strict payments are strengths at times as well as weakness. If a moderate policy, as per present
conditions are adopted, the dealers and customers shall be attracted to buy more and regularly.
➢ Shortened hierarchy shall provide hope for better customer service.

THREATS
➢ Smaller players in the market are using Vardhman’s process as a shield to push their product at
lower prices.
➢ Capacity of Yarn Spinning is increasing rapidly in comparison to increase in market size,
resulting into the addition of new players. This would result in price cuts, liberalization of
payment, terms and conditions etc. the various functional areas.

4. Financial analysis

Liquidity ratios
Liquidity refers to the ability of the concern to meet its current obligations as and when they
become due. Liquidity ratios are calculated to measure short term financial soundness of the
firm.
Current ratio
The objective of computing this ratio is to measure ability of the firm to meet its short-term
obligations and to reflect the short term financial strength /solvency of a firm
It is computed by
Current ratio = Current assets
Current liabilities
Graphical representation

Analysis and interpretation

From the above table it is clear that the current ratio of the "VARDHMAN " is increasing. As a
rule of thumb or as a convention current ratio of 2:1 is considered satisfactory. The current ratio
of the company is not up to the mark in any of the above three years. An insight into the B/S of
the company's major portion of current assets consists of inventories and sundry debtors. That is
why company can face some financial crises for paying its current liabilities.

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Quick ratio
The objective of this ratio is to measure the firm’s ability to meet its short-term obligations as
and when due without relying on realization of stock.
Quick ratio = Quick assets
Current liabilities
Quick assets mean those current assets which can be converted into cash immediately or at a
short notice. It include cash and balance, marketable securities, debtors, bills receivable and short
term loans and advances.

Graphical representation

Analysis and interpretation

From the above table it is clear that the Quick ratio of the "VARDHMAN" is Fluctuating. Quick
Ratio is more than the Banker's rule of thumb i.e. 4: 1.in the years 2008-09 which shows the
company is satisfactorily liquid to fulfill C.L well in time but it is less satisfactory in the year
2007-08 and 2009-10 i.e. 2.54 and 3.47 resp.

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Leverage ratios
These ratios provide an insight into the financial techniques used by a firm and focus on the long
term solvency position with regard to periodic payments of interest during period of loan,
repayment of principal on maturity or in predetermined installments on due dates.

Debt-Equity ratio
This ratio measures the relative proportion of debt and equity in financing the assets of a firm.
Debt-Equity ratio = Long-term debt
Shareholder’s fund
Graphical representation

Analysis and interpretation

Generally, a ratio of 2:1 considered satisfactory. A very high ratio may be unfavorable, if very
high rates of interest have been paid and pressures and conditions of creditors have been
accepted. A high ratio shows a large share of financing by the creditors of the firm. A low ratio
implies a smaller claim.

Return on equity

The objective of this ratio is to find out how efficiently the funds supplied by the equity share
holders have been used.

Return on equity= Net profit after tax and interest *100

Equity shareholders fund

Graphical representation

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Analysis and interpretation

A very high ratio in these favorable, if very high rates of dividends have been paid to equity
shareholder it is quite good for the reputation of the company. In 2007-08 it is 2.7 and then in
2008-09 its 2.87 and in 2009-10 its 3.91.its increases year after year.

Trend of turnover over past 5 years

Financial year Turnover(Rs. Crore)

2005-06 1957.25
2006-07 2159.24
2007-08 2346.36
2008-09 2495.38
2009-10 2767.22

Graphical representation

Turnover of the organization is increasing over the past 5 years. During 2009-10 company has
shown a increase of 10.89% compared to previous year turnover. Also, the export of company
increased to Rs. 704 crore, showing an increase of 12.27% over the previous year owing to
enhanced production and better product/ market penetration.

Trend of Earning per share over past 5 years

Earnings per share = Net profit after tax and interest * 100
Number of equity shares

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 Financial year Earning per share (Rs.)
2005-06 33.98
2006-07 29.72
2007-08 21.21
2008-09 24.37
2009-10 37

Graphical representation

Earning per share for the year 2009-10 is 37 Rs. which is 51.82% higher than the previous year.
During the past decades, although turnover has increased but, earning per share has shown a
decreasing trend from 2005-06 to 2007-08. Earning per share has started showing an increasing
trend over the past 2 years.

Segment wise break up for financial year 2009-10

Segment Revenue(Rs. Crore)

Yarns 2186.15
Sewing Thread 385.52
Steel 254.61
Fabric 811.14
Acrylic Fibre 270.38
Unallocated 122.88

Graphical representation

Maximum i.e. 54% of the turnover is earned by yarn business, followed by fabric, sewing thread,
acrylic fibre and steel.

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PART - B

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 TABLE OF CONTENTS

Chapter No. Particulars Page No.

1. Introduction to Topic 37-42
2. Review of Literature 43-51
3. Need & objectives 52-53
4. Research Methodology 54-56
5. Data Analysis and Interpretation 57-109
6. Result and Findings 110-112
7. Conclusion 113
Bibliography 114-115
Annexure 116-119

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CHAPTER- 1
1.1 INTRODUCTION:

Botanical Name: - Gossypium Hirsutum

Family: - Malveceae

Cotton is a soft, fluffy, staple fiber that grows in a boll around the seeds of the cotton plant. It is
a shrub native to tropical and subtropical regions around the world, including
the Americas, Pakistan, India and Africa. The fiber most often is spun into yarn or thread and
used to make a soft, breathable textile which is the most widely used natural-fiber cloth
in clothing today.

2
Cotton is a natural fiber harvested from the cotton plant. Cotton is one of the oldest fibers under
human cultivation, with traces of cotton over 7,000 years old recovered from archaeological
sites. Cotton is also one of the most used natural fibers in existence today, with consumers from
all classes and nations wearing and using cotton in a variety of applications. Thousands of acres
globally are devoted to the production of cotton, whether it be new world cotton, with longer,
smoother fibers, or the shorter and coarser old world varieties.
Cotton is in the mallow family and produces delicate, lovely flowers. Other members of the
mallow family include hollyhocks and hibiscus, used to brighten gardens all over the world. The
cotton fiber forms around the seeds of the cotton plant and is designed to help carry the seeds
long distances on the wind so that the plant can distribute itself. Early humans realized that the
soft, fluffy fibers might be suitable for textile use and began to breed the plant, selecting for
fluffy, easily spun varieties.

The chemical composition of cotton is as follows:

Cellulose 91.00%
Water 7.85%
Protoplasm, Pectins 0.55%
Waxes, fatty substances 0.40%
Mineral salts 0.20%

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1.2 History of Cotton:
Cotton is one of the oldest fibers known to humanity. Some of the earliest fabric relics found in
excavations of ancient civilizations have been cotton. Cotton was cultivated in Mohanjo Daro in
2500 B.C. Textiles of complex technique and design was found in Huaca Prieta, Peru circa 2400
BC. The word cotton itself comes from an Arabic word 'qutun' or 'kutun' used to describe any
fine textile. So, this is how the cotton evolved.

The first people in Eurasia to grow cotton for clothing and towels and sheets were the
Harappan people in India, about 2500 BC. We know because people wrote about cotton in
the Rig Veda, and that was written about 600 BC in India. Egyptian farmers also grew a little bit
of cotton, but cotton never became very important in Egypt, where people mostly
wore linen clothing.

In the 400’s BC, a Greek historian, Herodotus, wrote that in India there were "trees growing
wild, which produce a kind of wool better than sheep’s wool in beauty and quality, which the
Indians use for making their clothes" (Book III, and again in Book VII, where Herodotus tells us
that Indians fighting in Xerxes’ army were dressed in cotton). Around this time, the Ajanta Cave
carvings show that cotton growers in India had invented a roller machine to get the seeds out of
the cotton.

1
By the Guptan period, about 200 AD, the Indians made a good business of selling cotton as a
luxury to the Parthians to their west and to the Chinese to their east. The Romans, further away,
thought of cotton as an expensive luxury like silk. They had to buy it from Arabicor Parthian
traders. The Roman encyclopedia writer Pliny reported that in India there were "trees that bear
wool" and "balls of down from which an expensive linen material for clothes is made" (Pliny
Book XII 38).

1.3 Types of Cotton:

Egyptian cotton
Egyptian cotton is a fine, glistening cotton that has long thinner fibers. This is the most popular
cotton that is used to make bed sheets, cushion covers etc. It is light brown in color and is
suitable for strong yarns.
Sea Island cotton
Sea Island cotton is an expensive one, as its growth and processing takes a lot of efforts and cost.
It is one of the finest cottons present in the world of cotton and is often mixed with silk. The
clothes made out of this variety of cotton are expensive for the buyer, because of the high cost of
production.
Pima Cotton
Pima cotton has long and smooth fibers and falls in the category of Extra Long Staple (ELS)
types of cotton. Similar to the Egyptian cotton in terms of quality, it is a strong, soft, and durable
material, which make it one of the most famous and popular cotton types to be used for clothing,
towels and sheets.
Asiatic Cotton
This type of cotton can be found in India, China and near Eastern regions. It has harsh and coarse
fibers and is well suited to manufacture blankets, filters, coarse clothes and padding materials.
American Upland Cotton
American Upland cotton is one of the most commonly used cotton and is less expensive as well.
It is of a basic quality and is used to make several fabrics. The cotton is of an extremely versatile
nature and can be used to manufacture expensive shirts and denims as well.

2
Canton Cotton
Canton cotton is a type of cotton used for manufacturing winter clothing like sweaters, because if
it’s heavy nature. It is strong, soft and difficult to pull apart, making it suitable for the purpose.
Canton cotton is the most popular type of cotton which people are aware of.
Organic Cotton
It is harder than the usual cottons and is not easily available in usual retail shops, neither are the
fabrics made out of this cotton are easily available. Organic cotton is minus any types of
chemicals and pesticides that are generally used in the production of other types of cottons. Even
the clothes manufactured out of this cotton are not exposed to the environmentally harmful
chemicals that the other materials are used to.

1
1.4 Yarn:

Yarn is a long continuous length of interlocked fibres, suitable for use in the production of
textiles, sewing, crocheting, knitting, weaving, embroidery and ropemaking. Thread is a type of
yarn intended for sewing by hand or machine. Modern manufactured sewing threads may be
finished with wax or other lubricants to withstand the stresses involved in sewing.[1] Embroidery
threads are yarns specifically designed for hand or machine embroidery.

1.5 Price:
Price can sometimes alternatively refer to the quantity of payment requested by a seller of goods
or services, rather than the eventual payment amount. This requested amount is often called the
asking price or selling price, while the actual payment may be called the transaction price or
traded price. Likewise, the bid price or buying price is the quantity of payment offered by a
buyer of goods or services, although this meaning is more common in asset or financial markets
than in consumer markets.

1.6 Fluctuation:
Fluctuation means changing or variations. It simply means to vary i.e. rise or fall.

1
CHAPTER- 2
REVIEW OF LITERATURE
Ge, Wang, Ahn, (2010) concluded that the integration of China's cotton market with the
international market, especially the U.S. market. Investigating the futures prices from the
Intercontinental Exchange (ICE) in the U.S. and the Zhengzhou Commodity Exchange (ZCE) in
China with several time series models, we find that a long-run cointegration relationship exists
between these two series. The two markets share price transmissions, and based on results from
an Autoregressive Conditional Heteroskedasticity (ARCH) model, we find their price volatilities
are similar. We argue that China's recent exchange rate reform and its gradual liberalization in
bilateral cotton trade since it joined World Trade Organization have had important impacts on
these futures markets. Based on these findings, several important economic and policy
implications are derived.

Keef, Zhu, (2009) concluded that There is an extensive literature on the Monday effect with
stock indices. It is regularly reported that the return on Monday is correlated with the return on
the prior Friday. The bad Monday effect occurs when the return on the preceding Friday is
negative. Cotton is an economically important commodity in the United States and around the
world. This investigation into the daily price seasonality in the U.S. cotton market is based on
spot prices from Memphis and futures prices from the New York Cotton Exchange. The
regression methodologies employ adjustments to control for undesirable properties in the error
terms. There are three main conclusions. First, the close-to-close changes in the futures price and
in the spot price exhibit a negative Monday effect. Second, a negative bad Monday effect is
observed on Mondays using close-to-close prices. The effect is present during the weekend
nontrading period and continues into trading on Mondays. Third, the negative bad Monday effect
does not appear to weaken in close-to-close prices and during the weekend over the period
examined (1987–2003). However, there is weak evidence of a temporal decline during trading on
Mondays. [EconLit Citations: G12, G14, Q14]. © 2009 Wiley Periodicals, Inc.

Gupta (2009) in his study titled, “Surge in prices of manmade yarns due to boost in excise duty”
remarked that prices of manmade yarn have increased by 3-4 percent, due to the effect of the
budgetary announcement in which excise duty on synthetic yarn has been boosted from 4 percent
to 8 percent. It is obligatory for units to pay excise duty at the fibre and yarn stage, but optional if

1
further processing of the synthetic yarn is undertaken. This decision has been opposed tooth and
nail by the textile sector. 4% additional duty has been imposed on synthetic yarns increasing
burden in cost of raw material, manufacturing, finished products etc. This has also raised the
challenges from China, since due to this decision, bank credit will drop and unemployment will
increase and ultimately will disturb economy of the industry. The only alternative is to increase
the prices of our products or shift to some other prospective markets, or shift from existing
product to another product.

Kulkarni (2009) in his study titled, “Is Eco fashion worth the price tag?” has analyzed that
today’s consumers are well aware of the threats imposed by global warming, and the necessity
for ecological living. But the fact of consideration is the price involved in adopting the lifestyle.
Eco clothing is still at a nascent stage, and requires a considerable amount of money and time for
the cotton cultivators to change from conventional to organic crop. Similarly, manufacturers
need more investments in machinery for eco clothing. Eco fabrics are generally more expensive
due to the fact that mass production is not practiced currently. Thus, even if the consumer gets
what he wants, it turns out to be a big burden on his/her purse and budget. If produced and
utilized in a proper way, it has a longer life span comparatively over conventional fabrics.
Manufacturers should focus on making outfits that are stylish, combined with a reasonable price
tag. These clothes should also be available in many places to suit the shopping needs of the
consumers. The slogan 'Going Green' is not just concerned with the impact of environment
related activities, but also brings about a positive change in the precedence of our wants and
needs.

Shah (2009) in his study titled, “Survival of textile industry rests on three key factors” states that
the Indian textile industry experienced a reverse trajectory in its exports during 2008, which is
not a welcome situation. Economists predict that economy will start reviving only by 2011. The
interim would be a period of stress for Indian textile industry. The industry has to practice
diversification of scale, quality and innovation to survive the current dire situation. Indian textile
industry should invest in Research and Development. The industry should also plan for
enhancement through expanding the product basket and product mix for a particular industry
based on its efficiencies and resources. It should not only aim at developing the international
market, but also focus on the growing middle class domestic market.

2
CRISIL, (2008) estimated cotton yarn demand to grow at a compounded annual growth rate
(CAGR) of 7.5 per cent during 2007-08 to 2012-13 from 2,845 million kgs to around 4,086
million kgs. The domestic consumption of garments and made-ups will continue to be the key
demand driver for cotton yarn. Further, within the domestic market, CRISIL Research sees high
growth in demand for finer counts of yarn driven by rising consumption of premium apparels
and made-ups. Although the appreciation of the rupee had led to a temporary slowdown in
exports, CRISIL Research expects India to consolidate its share in the exports market, given its
strength in the cotton-based apparel products and the opportunities for exporting high-value
high-fashion products. Consequently, CRISIL Research expects demand for cotton yarn derived
from exports to grow at a CAGR of 6.6 per cent from 710 million kgs in 2007-08 to 975 million
kgs in 2012-13. Direct yarn exports are likely to see a moderate growth of 5 per cent, given the
fact that some of the traditional export markets like China and Bangladesh have backward
integrated into spinning.

BROADBERRY, GUPTA, (2008) concluded that In the early eighteenth century, wages in
Britain were more than four times as high as in India, the world's major exporter of cotton
textiles. This induced the adoption of more capital-intensive production methods in Britain and a
faster rate of technological progress, so that competitive advantage had begun to shift in Britain's
favour by the late eighteenth century. However, the completion of the process was delayed until
after the Napoleonic Wars by increasing raw cotton costs, before supply adjusted to the major
increase in demand for inputs

Chattopadhyay (2008) in his study titled, “Indian Apparel Fabric Market Needs High Quality
Innovation” has concluded there are many instances of product developments regularly practiced
by the Unorganized Sector of the Indian textile Industry. It is the low cost, simplicity and speed
with which such innovations are translated into commercially viable and profitable products by
the so called 'Unorganized Sector'. Such novelty or fancy items have shorter product life cycle.
But those die hard entrepreneurs make sure that before the cycle comes to an end; some new
innovations are made and delivered. The purpose of this article is to highlight the in-born
strength of India. The Indians, by nature are more creative than productive. In terms of textile
productivity, China is far ahead of India. But in terms of innovation and designing that require
emotional quotient, India rules. Yet, despite having the talents and the demands, India lags
behind western countries in terms of remarkable product development. The R&D at the Industry

3
level is virtually non-existent because the Industry hardly understands the long term value of
Product Research.

Acajou (2007) in his study titled, “Management trends in textiles and clothing” concluded that
global trade and production of textiles and clothing and the organizational trends occurring in
enterprises in order to enable them to face increased competition due to trade liberalization and
the communications revolution. It introduces the concept of ‘quick response’ and characterizes
the problems it aims to overcome. The first part covers an analysis of advanced
telecommunication systems and the methodologies of TQM, as well as the use of ‘flexible
manufacturing systems’, some of which are still in an R&D phase. In the second part, product-
oriented organizational structures and flow type production systems are looked at. The need to
shorten lead time and of training multifunctional personnel is stressed.

Athalye (2007) in his study titled, “Continuous Dyeing” analyzed that the continuous dyeing of
Cotton, Polyester & their blends is gaining importance over the traditional exhaust dyeing
process owing to the major advantages in terms of uniformity of shades in long yardages, high
productivity, simple/ short dyeing process, low utility cost in terms of consumption of dyes,
chemicals, water, energy & low effluent generation. Considering the recent changes in the Indian
textile industry & the challenges faced from the global competition, the industry is moving
towards Economies of Scale with latest technology, stringent Product quality and Safety
standards, minimization of lead times of deliveries, higher pressure on Price-Trend towards high
economy, modernization, Automation & Re-structuring activities, growing importance of Brands
and retailers, fast changing consumer Tastes, increasing technical support requirements by the
user industry.

Curran (2007) in his study titled,” Clothing’s big bang: the impact of the end of ATC on
developing countries clothing suppliers” concluded that significant changes occurred in sourcing
patterns in the EU almost overnight. The big winners were India and China. Almost all other
developing countries lost market share, although often not as much as had been feared. The
impact of the liberalization was mitigated somewhat by the new quantitative restrictions
negotiated with China half way through the year, which resulted in a redistribution of market
share to other developing countries. Comparisons with the USA indicate that trends are rather
similar, although on that market more developing countries saw increases in their exports, partly
cancelling out losses in the EU.

4
Jain (2007) in his study “The U.S Textile Industry: Post NAFTA” has examined current trends,
which have resulted primarily from NAFTA. Specific focus has been given to yarn production
levels, price, imports, exports and labor. The purpose of the research presented in this paper was
to examine the effects of NAFTA on the US short staple spinning industry. Recently, there has
been a great deal of attention given to the decline of the US textile and apparel industry,
particularly the causes surrounding the decline. Many observers blame dumping by South-East
Asian countries, particularly China, in addition to the Asian financial crisis for this decline.
Others, however, credit the decline mainly to the North American Free Trade Agreement.
NAFTA was implemented on January 1, 1994, and began liberalizing trade and investment rules
between the United States, Canada, and Mexico. For textile products, the US reduced tariffs and
expanded quota-free access for items constructed from yarn and fibre produced by a NAFTA
country. Theoretically this agreement, as well as other regional trade agreements, such as the
Trade and Development Act (TDA), should have increased the demand for basic US textile
commodities, since the details of agreements of this type include a yarn forward clause.

Ray (2007) in his study titled,” Moving up the Value Chain?: Comparison of the Indian Textile
Industry with the Chinese Textile Industry ' Post-MFA” concluded that International trade in
textiles has been governed by the Multi-fiber Agreement (MFA) since 1974 and its successor,
the Agreement on Textiles and Clothing (ATC), since 1995. The phasing out of this agreement
has particular relevance for India, since India, along with China, is expected to make important
gains in the textiles market. This paper examines the relative performance of the Indian Textile
Industry with the Chinese industry and examines the prospects for future growth of the Indian
Textile Industry.

Switha (2007) in his study titled, “Price Volatility in the Cotton Yarn Industry: Lessons from
India” has looked at how India has addressed cotton yarn price volatility in the handloom sector.
In an era of modernization and globalization, India's handloom weavers have found their margins
squeezed by volatile cotton yarn prices, increasing domestic and international competition, and a
crowded value chain. This study examines the steps India has taken to address the yarn price
vulnerability of its handloom weavers. It begins by describing the importance of the cotton
industry to the country, before moving on to discuss both the cotton yarn value chain and the
price volatility which affects each factor along it. It then focuses on the national and local
interventions which have been initiated to address this volatility, and their varying degrees of
success and failure. The paper concludes with a set of recommendations for policymakers.

5
Aggarwal & Singla (2006) in their study titled,” Antecedents to Market Orientation: A Study of
Textile Companies in India” concluded that consequently, the textile industry has been exposed
to global market forces after the phasing out of the multi-fiber agreement. Narver and Slater
(1990) have emphasized that market orientation is the culture that creates the necessary
behavioral value among buyers thus leading to a continuous superior performance for the
business. Therefore, companies that are more oriented towards the market are better positioned.
The subject of market orientation has been of interest to both researchers and practitioners, for
several years: The major focus, however, is on studying what market orientation is and its impact
on the organization. Very little effort has been made to study the factors that impede or promote
market orientation. Much of the research has been carried out in developed countries, with data
collected from a wide variety of industries.

Hall (2006) in his study titled,” China Casts a Giant Shadow: The Developing World Confronts
Trade Liberalization and the End of Quotas in the Garment Industry” concluded that Developing
nations became attractive manufacturing locations thanks to their access to the restricted U.S.
and EU markets. The garment industry permitted even the poorest nations to participate in the
global economy in an environment largely protected from the harsh realities of unfettered
international competition. However, the structure of globalization in the garment industry, with
its characteristic distribution of manufacturing around the world, now appears extremely fragile.
The ending of the quota system on January 1, 2005, seems likely to result in a massive
concentration of manufacturing capacity in China.

Anderson, Valenzuela (2006) concluded that In the world, the largest volume of cotton
production is concentrated in countries like China, United States, India, Pakistan and Brazil. And
yet, low-income countries in Sub-Saharan Africa (e.g. Benin, Burkina Faso, Chad) and other
similarly poor countries elsewhere in the world depend heavily on cotton for earning foreign
exchange (Anderson and Valenzuela, 2006). Anderson and Valenzuela (2006) stated that exports
of lint cotton in US, Australia, Uzbekistan and Brazil accounts for almost two-thirds of the
world’s exports. The well known lint cotton importing countries in the world are Pakistan, India,
Greece, Djibouti, Egypt, Oman, United Arab Emirates, Srilanka, China, Brazil, Japan, Portugal,
Sudan, Morocco, Thailand, Denmark, Indonesia, Yemen, Turkey, Switzerland, Vietnam, Italy,
Mexico, Korea Republic, Russia Federation, Germany, Canada, South Africa, Tunisia (MoARD,
2004, cited in EBDSN, u.d).

6
Hornborg, (2005) concluded that method for quantifying the global exchange of (natural) space
and (labor) time underlying the economic success of the British textile industry in the late 18th
and early 19th century. Using historical statistics on inputs of land and labor embodied in cotton
and wool production, respectively, estimates are made of the amount of British land and labor
that were ‘saved’ by displacing fibre production to North America. By comparing inputs of land
and labor in the textile exports of England with those in some commodities imported from its
colonial periphery, and juxtaposing these data with exchange rates, estimates are also made of
unequal exchange. Using such methods, it is possible to bring together the Marxist concern with
unequal exchanges of labor time, on one hand, with the more recent concern with ecological
footprints, on the other.

Prasad (2005) in his study titled “The Impact on India of Trade Liberalization in the Textiles
and Clothing Sector” analyzed the impact of the elimination of textile and clothing (T&C) quotas
in 2005 on India. The simulations suggest that while Indian exports of T&C will continue to
expand in the presence of the safeguards on China, they will be affected adversely once these
safeguards are lifted. We argue that India could emerge much stronger and expand its trade in
T&C at a much faster pace, if some of the key domestic structural weaknesses are overcome.

Tewari (2005) in his study titled,” Post-MFA Adjustments in India's Textile and Apparel
Industry: Emerging Issues and Trends” concluded that India's recent surge in clothing exports
has occurred despite the lack of major FDI in textile and apparel or entry into preferential
regional trade agreements with buyer countries, or any significant direct role of global buyers.
Arguing that changes in domestic policy and in the structure of domestic demand throughout the
1980s and 1990s played an important role in triggering new growth in India's textiles and apparel
exports, and reshaping the capabilities of local firms, this paper examines three features of India's
recent integration into global clothing markets: the striking emergence of design as a source of
comparative advantage in Indian apparel, the growing importance of outward-bound investment
by Indian clothing firms in recent years, and the powerful new role that retail is playing in
organizing the Indian domestic market, driven in part by surging consumer demand from entirely
new mid-market youth segments.

7
Baffes, (2004) concluded that recent trends in cotton production focuses on cost reductions by
using less intensive inputs, for example, using genetically modified (GM) seed technology and
organic methods of production. Again, absence of opposition on GM cotton has allowed more
rapid adoption (Baffes, 2004).

Anand (2004) in his study titled, “Indian Textile Industry: Economics of FTA’s” concluded that
it is imperative that Indian textile industry should be given next five years as breathing time
enabling it to build capacities, overcome technology deficiency and consolidate operations.
Meanwhile the process of creating supporting infrastructure, competitively power, development
of cluster specific infrastructure, fast connectivity with ports should be taken care of. After five
years the status of industry may be reviewed and can be selectively opened through FTA’s or
gradual reduction in the duty structure as committed to WTO by government of India.

Irwin, (2002) concluded that The US produced about 80% of the world’s cotton in the decades
prior to the Civil War. How much monopoly power did the US possess in the world cotton
market and what would have been the effect of an optimal export tax? This paper estimates the
elasticity of foreign demand for US cotton exports and uses the elasticity in a simple partial
equilibrium model to calculate the optimal export tax and its effect on prices, trade, and welfare.
The results indicate that the export demand elasticity for US cotton was about −1.7 and that the
optimal export tax of about 50% would have raised US welfare by about $10 million, about 0.3%
of US GDP or about 1% of the South’s GDP.

Wakelyn, (2002) concluded that Cotton is both a fiber and food crop that is grown in about 80
countries. Annually in the world about 90 million 217.7 kg (480 lbs) bales [~19.6 million metric
tonnes (21.6 million tons)] of cotton fiber and 27 million metric tonnes (29.8 million tons) of
cottonseed are produced. Cotton is the most important natural fiber (about 37% of the textile
fiber consumed in the world in 2002) used to produce apparel, home furnishings, and industrial
products. Cottonseed is the world's No. 3 oilseed, used for vegetable oil, animal feed, and linters.
Over 90% of the world's cotton production is upland cotton (G. barbadense. In 2002 transgenic
varieties are about 25–30% of the cotton grown in the world. Commercial cottons are white.
There has been some interest in naturally colored cottons (shades of brown and green are the
main colors) and organic cotton but, at present, there is very little production of these cottons [<
20,000 bales worldwide; < 4455 metric tonnes (4800 tons)]. The origin, biosynthesis, biology,
development, production, harvesting ginning, classification, physical properties, morphology,

8
physical structure, chemistry, reactivity, economic aspects, utilization, and health and safety are
reviewed.

Baffes, Ajwad, (2001) concluded that price linkages and examines the degree to which cotton
prices are linked; it also tests whether such linkages have improved over the last decade. It
concludes that the degree of linkage has improved over the last decade while the main source of
this improvement appears to be a result of short-run price transmission and to a lesser extent
long-run co-movement.

Branson, Norvell, (1983) concluded that problems encountered while marketing particular
products. These products could be consumers, industrial or agricultural product (Branson and
Norvell, 1983; Kohls and Uhl, 1985; Mendoza, 1995). This approach is used to deal with list of
products and this detail analysis includes the classification of products characteristics of
products, source of supply, persons engaged in the exchange process, transportation of the
product, its financing, storage, and advertisement (Branson and Norvell, 1983). Institutional
analysis in this approach involves identifying major marketing channels, analysis of marketing
costs and margins (Mendoza, 1995).

2
CHAPTER-3

3.1 NEED OF THE STUDY

This research has been conducted to study the various reasons for fluctuations in prices of raw
cotton and cotton yarn. This study also conducted to know the effects of government restrictions
on prices of cotton and cotton yarn. This study also reveals the international and domestic market
of the raw cotton and cotton yarn. It is also conducted to know the basic reasons for fluctuations
in prices and to know the demand of the raw cotton.

1
 3.2 OBJECTIVES:
 To understand the domestic and international market of raw cotton and cotton yarn.

 To analyze the fluctuations in prices of raw cotton and cotton yarn.

 To find out the basic reasons for the fluctuations in prices of raw cotton.

 To determine the impact of price on the demand of cotton.

1
 CHAPTER-4
RESEARCH METHODOLOGY:
Introduction:
• Research methodology is a way to solve the research problem. It may be understood as a science
of studying how research is done scientifically. In this we study various steps of research process
that are generally adopted to solve a research problem and to understand basic logic behind them.
In order to understand any problem completely, comprehensive research has to be undertaken.
• Type of methodology that would be used to carry out the research is explained, justifying the
qualitative research method used in this study. In this selection of sample, collection of data,
statistical tools used in analysing data and limitation of study has been discussed.

4.1 Research Design

A research design is an arrangement of conditions for collection and analysis of data in a manner
that aims to combine relevance to the research purpose with economy in procedure. It constitutes
the blueprint for collection, measurement and analysis of data.
The research design for this research is descriptive.

4.2 Data Collection

For this research study the data has been collected by both the primary & secondary means.
For primary data collection I adopted the structured schedule, which was filled by 10
respondents who were selected deliberately from 10 suppliers of raw cotton for Vardhman.
Secondary data on the other hand, is collected from external sources such as TV, internet,
journals, newspapers, reviews, research articles, etc. In words of Catherine Dawson (2002).
Secondary data can be expressed as set of information which other researchers have already
collected relating to the subject. The secondary data for this particular study were collected
through internet, marketing journals and other company manuals.
Secondary data is comparatively cheaper and easier to obtain than primary data. The problem is
that often the reliability, accuracy and integrity of the data is uncertain, whereas primary data is
expensive and difficult to acquire but it is trustworthy.

1
4.3 Universe:
Universe refers to all the eligible respondents of a particular research around the world. For
primary, the universe for our research is all the suppliers who supplies raw cotton for the
Vardhman. For secondary, the universe for research is all the data related with raw cotton and
cotton yarn is collected from external sources such as TV, internet, journals, newspapers,
reviews, research articles, etc.

4.4 Population:
Population refers to part of universe from which the sample for conducting the research is
selected. Universe & population can be same in some researches.
The population of primary research is 10 suppliers of raw cotton who are working with
VARDMAHhHMAN.
The population of secondary research is world MAHhbalance sheet of raw cotton & cotton yarn
from year 2003-04 to 2009-10.

4.5 Sampling Design:

A sample design is a definite plan for obtaining a sample from a given population. It refers to the
technique or the procedure the researcher would adopt in selecting items for the sample.
Non probability sampling technique with convenience sampling for primary research is used. For
secondary research judgmental sampling technique is taken.

4.6 Sampling Unit:

Sampling unit refers to smallest possible individual eligible respondent.
In this study the sampling unit is single individual respondent who is working with Vardhman as
supplier of raw cotton.

4.7 Sampling size

Sampling size refers to total number of respondents targeted for collecting the data for the
research. The sampling size of our study is 10 respondents with suppliers of raw cotton for
Vardhman.

4.8 LIMITATIONS OF THE STUDY:

2
 The study based on survey through pre-designed questionnaires suffers from the basic limitations
of the possibility of difference between what is recorded and what is the truth, no matter how
carefully the questionnaire has been designed and field investigation has been conducted. This is
because the persons may not deliberately report their true responses and even if they want to do
so, they are bound to be differences owing to problems in the communication process. In
addition, there are some limitations, which are as below:

• Data collection error may be there due to wrong response from respondents as some time they
are not the right person who takes actual decisions.
• Some of the respondents can hide the real information.
• Some time people did not have time to fulfill questionnaire, so they give only few information.
• A sample size cannot always represent the whole population.

1
 CHAPTER 5
DATA ANALYSIS AND
INTERPRETATION

2
5.1 WORLD COTTON SCENARIO:

World cotton production declined for the second consecutive year in 2008-09 by 10%. In
2007/08, the production levels had dropped by around 2%. In fact, the world cotton production at
102 million 480 lb. bales during 2009-2010, is the lowest since 2004-05. The reduction in world
cotton area for the second consecutive season was one of the reasons for the fall in production; a
significant area under cotton cultivation was shifted to grains and oilseed production because
these earned more attractive prices than cotton. In the last few years world cotton harvested area
declined at a sustained rate. According to the USDA data, area under cotton cultivation shrank to
30.32 million hectare in 2009-2010 from 32.94 million hectare in 2007-08. During 2008-09,
cotton yield also registered a decline compared to the previous year primarily on account of
unfavorable weather conditions across the world. After witnessing sustained improvement since
2000-01, the world cotton yield is forecasted to have moderated to 767 kg/ha in 2008-09 from a
peak of 797 kg/ha in 2007-08. World cotton yield has increased by around 17.8% between 2003-
04 and 2008-09 mainly due to extensive use of BT cotton varieties across the globe. Genetically
modified (GM) seeds constituted around 48% of the total harvested area globally in 2008-09.
During 2008-09, almost all the major cotton producing countries witnessed a decline (y-o-y) in
cotton production, except Pakistan and Australia. China, India, USA, Pakistan, Brazil and
Uzbekistan accounted for almost 85% of the world cotton production in 2008-09.

Even world cotton imports and exports declined during 2008-09. Exports from major exporting
countries such as the US, India and Uzbekistan fell and caused world exports to decline by

1
almost 25.36% in 2008-09. Imports from some of the major importing countries such as China,
Turkey and Pakistan also declined.
World Balance Sheet:

World Cotton Balance Sheet

(1,000 HA and 1000 480-lb. Bales)

Year Area Beginning Production Imports Total Exports Consumption

Harvested Stocks Supply
2000/01 32015 51104 89098 26227 166429 26200 92198

2001/02 33727 49410 98701 29304 177415 29149 94442

2002/03 30751 54530 90976 30187 175693 30457 98390

2003/04 32317 47625 96735 34112 178472 33198 98073

2004/05 35725 48085 121504 33839 203428 35014 109014

2005/06 34744 60570 116696 44769 222035 44595 116680

2006/07 34588 62379 121969 38055 222403 37266 123720

2007/08 32948 63254 120056 38991 222301 38527 123062

2008/09 30732 62885 107455 30041 200381 30155 109740

2009/10 30322 63155 102907 34616 200678 34585 115890

The current world production is 102 million 480 lb bales in 2009-2010. This is the lowest as
compared to 121 million 480 lbs. in 2004-2005 and it represents a 15.7% decrease relative to
2004-05 and a 4.6% decrease relative to 2008/09. Global cotton consumption increased from 92
million bales in 2000/01 to 115 million bales in 2009/2010 with an increase of 25 percent. The
cotton consumption increased for China (+500,000), India (+250,000), Vietnam (+150,000), and
Uzbekistan (+100,000).

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As per latest report of USDA, the production of cotton decreased by 24,000 bales (2009 - 10 Dec
as compared to 2009 - 10 Nov). Country-wise report includes India (-450,000 bales) and Peru (-
150,000); Pakistan (+400,000 bales) and the United States (+96,000). Due to the reduction in
cotton production in the world and increase in world cotton consumption have resulted in
expectations of an 11.8 million bale production/consumption gap in 2009/10, which represents
11.5% of production, 10.3% of consumption, and 22.7% of ending stocks.
The world production/consumption gap may impact on prices and at the country level this may
impact on trade patterns. China’s 2009/10 production is 14.2% lower than in 2008/09 whereas
the Chinese consumption is anticipated to increase 3.9%.

Since 2004/05, the United States is the world’s largest cotton exporter. However, India has been
rapidly gaining export market share. Today India, with ample stocks and higher production, is
expected to continue to expand its share of the global export market. China having only half the
area of cotton production as compared to India, produces one and-a-half times more cotton, has
one-and-a-half times the world market share and three times the yield.

World cotton consumption has increased with 2% average annual growth rate since 1940s.
Developing countries consumed a major proportion of global cotton output since the end of
WWII. The share in global consumption of developing countries has become even more
significant since 2000s.

As per ICAC, the global cotton consumption of developing countries was approximately 78% of
global cotton consumption between 1981and 1999. Their ratio has been above 80% since 2000.
In 2010 they are expected to absorb almost 94% of global cotton output.
As per USDA, the cotton harvested area in 2000-01 is 32 million hectares and in 2009-2010, it is
30 million hectares. So, that is a key issue that the global cotton agencies have to think upon.
This is a major issue that is to be resolved to increase our cotton production.

The global cotton imports also increases from 26 million 480 lb. bales to 34 million lb. bales.
The largest producers of cotton, currently (2009), are China and India, with annual production of
about 34 million bales and 24 million bales, respectively; most of this production is consumed by
their respective textile industries. The largest exporters of raw cotton are the United States, with
sales of $4.9 billion, and Africa, with sales of $2.1 billion. The total international trade is

2
estimated to be $12 billion. Africa's share of the cotton trade has doubled since 1980. Neither
area has a significant domestic textile industry, textile manufacturing having moved to
developing nations in Eastern and South Asia such as India and China.

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5.2 WORLD COTTON PRODUCTION SCENARIO:
World Cotton Production Scenario:

(Millions of 480
2006/07 2007/08 2008/09 2009/10
lb. bales)

China 35.5 37.0 36.7 32.5

India 21.8 24.0 22.6 23.5

United States 21.6 19.2 12.8 12.2

Pakistan 9.9 8.9 9.0 9.9

Brazil 7.0 7.4 5.5 5.8

Uzbekistan 5.4 5.4 4.6 4.0

Turkey 3.8 3.1 1.9 1.8

Australia 1.4 0.6 1.5 1.6

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 Top ten cotton producers — 2009-2010 (480-lb. bales)

People's Republic of China 32.5 million bales

India 23.5 million bales

United States 12.2 million bales

Pakistan 9.9 million bales

Brazil 5.8 million bales

Uzbekistan 4.0 million bales

Australia 1.8 million bales

Turkey 1.6 million bales

Turkmenistan 1.1 million bales

Syria 1.0 million bales

Interpretation:
Obviously, China PRP is holding the top position in world in cotton production but its cotton
production had been decreased 8.45 percent since 2006-07. But India is going on right track as
there is an increase of 7.79 percent since 2006-07 but there is also in the production of cotton in
India in 2008-2009.

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On the other hand, USA is reducing its production day by day. As per USDA data, it is quite
evident that the USA cotton production had been reduced by 43.7 percent since 2006-2007.
The data for June 2010-2011 is estimated.

(Millions of 480 lb.

2006/07 2007/08 2008/09 2009/10
bales)

United States 13.0 13.7 13.3 12.3

India 4.6 7.0 2.4 6.4

Uzbekistan 4.5 4.2 3.0 3.8

Brazil 1.3 2.2 2.7 1.9

Australia 2.1 1.2 1.2 1.8

5.3 WORLD COTTON EXPORT:

Interpretation:

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In the Export scenario, USA is on the top of the List. USA is almost exporting the same amount
of cotton what they are producing because the cotton consumption in USA is negligible as
compared to other countries especially India & China.
In India, the cotton export is on right track with an increase of 39.13 percent increase from 2006-
07 but there is a sharp decrease of 65.71 percent in year 2008-09 from previous year 2007-08.
Well, World’s No. 1 cotton producer is not in the list of top 5 exporter of cotton because of the
very large need or consumption of cotton in their own country.

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(Millions of 480 lb.
2006/07 2007/08 2008/09 2009/10
bales)

China 50.0 51.0 44.0 47.5

India 18.1 18.6 17.8 19.5

Pakistan 12.0 12.0 11.3 11.5

Turkey 7.3 6.2 5.1 5.6

Brazil 4.6 4.6 4.2 4.4

Bangladesh 3.2 3.5 3.8 4.0

5.4 WORLD COTTON CONSUMPTION

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Interpretation:
In world cotton Consumption, China is leading because of being highest populated country of the
world. So, the demand of cotton is very high in their own country with an average consumption
of 47.5 million 480 lb. bales over the past 4 years. India is following China. Indian cotton
consumption had been increased 7.73 from 2006-07 to 2009-2010. This is because of the
increasing population of India. Turkey, Brazil and Bangladesh are on the 3rd, 4th and 5th place
with an average of 5, 4.5, 3.8 million 480 lb. Bales respectively.

5.5 WORLD IMPORTS SCENARIO:

(Millions of 480 lb. bales) 2006/07 2007/08 2008/09 2009/10

China 10.6 11.5 7.0 10.8

Bangladesh 3.2 3.5 3.8 4.0

Turkey 4.0 3.3 2.9 3.9

Indonesia 2.2 2.3 2.0 2.1

Pakistan 2.3 3.9 2.0 1.7

Thailand 1.9 1.9 1.6 1.8

Vietnam 1.0 1.2 1.2 1.7

Mexico 1.4 1.5 1.3 1.5

South Korea 1.1 1.0 1.0 1.0

Taiwan 1.2 1.0 0.8 0.9

Russia 1.3 1.1 0.7 0.7

India 0.5 0.6 0.8 0.6

Egypt 0.5 0.4 0.4 0.6

Hong Kong 0.4 0.4 0.3 0.3

Iran 0.3 0.3 0.3 0.3

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Interpretation:
China, the largest producer of cotton in world, is also on the top of the list of imports because of
the increasing demand of cotton in country because of the increasing population. It had increased
8.49 percent from 2006-2006 to June 2010-2011. The rate of increasing is not so much sharp but
in 2008-09, there is a sharp depth of 39.13 percent from previous 2007-08.
Bangladesh, Turkey & Indonesia are following China in imports with average imports of 3.5
million 480 lb. bales.
Bangladesh’s imports are increasing day by day because of the increasing demand of textiles
industries. Since, 2006-07, its imports had been increased 34.6 percent.
India is far behind in case of imports. It has an average of 0.62 million 480 lb. bales over the past
4 years.

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5.6 AREA PRODUCTION AND PRODUCTIVITY OF COTTON IN INDIA
DURING LAST TEN YEARS

Area, Production and productivity of cotton in India during last ten years
Area in lakh Production in lakh Yield kgs per
Year
hectares bales of 170 kgs hectare
2000-01 85.76 140.00 278
2001-02 87.30 158.00 308
2002-03 76.67 136.00 302
2003-04 76.30 179.00 399
2004-05 87.86 243.00 470
2005-06 86.77 244.00 478
2006-07 91.44 280.00 521
2007-08 94.14 307.00 554
2008-09 94.06 290.00 524
2009-10 101.71 292.00 488
Source : Cotton Advisory Board

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2
Interpretation:
From the above graph it can be inferred that area under cotton cultivation in India has been
increasing continuously since 2000. There is an increase of 18.59 percent in area harvested since
2000 to 2010. But this increment is at very less rate. As demand is increasing and supply is less
this led to increase in prices of cotton.

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Interpretation:
From the above graph it can be inferred that production has increased for last few years, there is
a Sharp increase of 108.57 percent since 2000-01.

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Interpretation:
From above graph it can be inferred that increase in the case of yield is 75.53 percent.
So it can be implied that a small increase in area leads to very large increase in production
because of the increase in the yield.

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5.7
ANNUAL AVERAGE PRICES OF KAPAS FOR IMPORTANT VARIETIES

Prices in Rs. per quintal

BENGAL
YEAR J-34 LRA H-4 S-6 DCH-32
DESI

2000-01 1438 2068 2103 2207 2310 2784

2001-02 1833 1828 1750 1891 1901 --
2002-03 1875 2218 2110 2215 2323 2927
2003-04 1962 2591 2470 2533 2632 3152
2004-05 1689 1844 1835 2003 2037 2840
2005-06 1738 1999 -- 2002 2058 4111
2006-07 1871 2133 -- 2168 2280 3034
2007-08 2351 2523 -- 2483 2613 2827
2008-09 3051 2800 -- 2850 2850 --

Interpretation:
It can be analyzed from the graph that the price of the raw material had risen due to reduction in
the supply of the commodity and increased demand for the same. The rise in the raw material
price is very evident from the demand supply imbalance.
5.8 RATES OF THE DOMESTIC COTTON (VARIETY - SHANKER-6)
THROUGHOUT THE YEAR 2009-2010
Date Shanker-6 (PER CANDY)
1/4/2009 22000
15/4/2009 22500
30/4/2009 22500
15/05/2009 23900
30/05/2009 24000
15/06/2009 23500
30/06/2009 23400
15/07/2009 23800
30/07/2009 23300

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 15/08/2009 23400
30/08/2009 22900
15/09/2009 23200
30/09/2009 22900
15/10/2009 23000
30/10/2009 24000
15/11/2009 24700
30/11/2009 26800
15/12/2009 26900
30/12/2009 27200
15/01/2010 26700
30/01/2010 26000
15/02/2010 27100
28/02/2010 27400
15/03/2010 27900
31/03/2010 28500
Source: Vardhman Polytex Limited
Note: 1 CANDY= 355.62 KG

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Interpretation:
As it can be analyzed from the graph, the prices of the shanker-6 are not expected to reduce
in short-term span. More or less the pattern has been consistent. More over this analysis is
in time with the current cotton industry scenario, in which various restrictions on exports
are imposed to stabilise domestic market prices.

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5.9 State-wise Area, Production and Productivity of cotton:
Area:
2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009-
Year 01 02 03 04 05 06 07 08 09 10
State Area Area Area Area Area Area Area Area Area Area
Punjab 4.74 6 4.49 4.52 5.09 5.57 6.07 6.04 5.27 4.96
Haryana 5.55 6.1 5.19 5.26 6.21 5.83 5.3 4.83 4.56 5.07
Rajasthan 5.1 3.47 3.86 3.44 4.38 4.71 3.5 3.69 3.02 4.44
Gujarat 16.15 16.87 16.34 16.47 19.06 19.01 23.9 24.22 23.54 26.24
Maharashtra 30.77 29.8 28 27.66 28.4 28.75 31.07 31.95 31.42 35.03
Madhya
Pradesh 5.06 6.23 5.45 5.91 5.76 6.2 6.39 6.3 6.25 6.46
Andhra
Pradesh 10.22 10.02 8.03 8.37 11.78 10.33 9.72 11.33 13.99 13.19
Karnataka 5.6 5.91 3.93 3.13 5.21 4.13 3.78 4.03 4.08 4.27
Tamil Nadu 1.93 2 0.85 1.03 1.29 1.4 1 0.99 1.09 1.04
Source: Cotton Advisory Board

Interpretation:
In the State-wise Area coverage, the cotton Maharashtra is on the top of the list followed by
Gujarat, which makes the production of the north Zone maximum among all zones. Maharashtra
is holding 34.44 percent area of all over India. Andhra Pradesh is also having good share in the
area harvested for cotton production.
Other states like Punjab, Haryana, Rajasthan, Madhya Pradesh etc. have a very small share in
area under cotton production.

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State wise Production of Cotton for the last ten years:
2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009-
Years 01 02 03 04 05 06 07 08 09 10
States Prod. Prod. Prod. Prod. Prod. Prod. Prod. Prod. Prod. Prod.
Punjab 9.5 9.25 7.5 10.35 16.5 20 24 20 17.5 14.25
Haryana 10 5.5 8.75 11.5 16.5 13 15 15 14 14.75
Rajasthan 10.75 7 5 9.15 10 11 9 9 7.5 11
Gujarat 23.75 32.5 30.5 50 73 89 103 110 90 98
Maharashtra 18.25 34.25 26 31 52 36 50 62 62 61
Madhya
Pradesh 19.25 20 18 19.65 16 18 19 20 18 14.5
Andhra
Pradesh 25.25 26.75 19.75 27.4 33 32 36 46 53 50
Karnataka 7.75 7 5 4.2 8 6.5 6 8 9 9.5
Tamil Nadu 5.5 5 3 3.75 5.5 5.5 5 4 5 5
Source: Cotton Advisory Board

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Interpretation:
In the state-wise production of cotton, Gujarat is on the top. As per the report of Cotton
Corporation of India, Share of Gujarat in cotton production in India is 34.02 percent.
Maharashtra being the largest in area harvested holds 2nd position after Gujarat and then comes
Andhra Pradesh.

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State Wise Yield Data for the Last Ten Years:
2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009-
Years 01 02 03 04 05 06 07 08 09 10
State Yield Yield Yield Yield Yield Yield Yield Yield Yield Yield
Punjab 341 262 284 389 551 610 672 563 565 488
Haryana 306 153 287 372 452 379 481 528 522 495
Rajasthan 358 343 220 452 388 397 437 415 422 421
Gujarat 250 328 317 516 651 794 733 772 650 635
Maharash
tra 101 195 158 191 311 213 274 330 335 296
Madhya
Pradesh 647 546 561 565 472 494 505 540 490 382
Andhra
Pradesh 420 454 418 557 469 527 630 690 644 644
Karnatak
a 235 201 216 228 261 268 270 337 375 378
Tamil
Nadu 484 425 600 619 725 668 850 687 780 817
Source: Cotton Advisory Board

Interpretation:
Tamil Nadu is having the highest yield among all other states followed by Andhra Pradesh as per
the statistics of Cotton Corporation of India in 2009-2010. The yield is continuously increasing
day by day since 2000.

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5.10 COTTON BALANCE SHEET
COTTON BALANCE SHEET
The Cotton Balance Sheet for 2009-10 vis-a-vis 2008-09 as drawn by Cotton Advisory
Board vide its meeting dt.08-04-2010 as under:
Quantity in lakh bales of 170 kgs each
Item 2009-10 2008-09
SUPPLY
Opening stock 71.50 35.50
Crop size 292.00 290.00
Imports 7.00 10.00
TOTAL AVAILABILITY 370.50 335.50
DEMAND
Mill Consumption 207.00 190.00
Small-Mill consumption 23.00 20.00
Non-Mill Consumption 20.00 19.00
TOTAL CONSUMPTION 250.00 229.00
Exports 80.00 35.00
TOTAL DISAPPEARANCE 330.00 264.00
CARRY FORWARD 40.50 71.50
Source: Cotton Advisory Board

Interpretation:
As it can be seen from the table presented above, the demand increased annually. Demand
was 229 lakh bales in year 2008-2009. & it gradually increased to 250 lakh bales in year
2009-10, also exports consumption of Cotton in India has more than doubled, which has
led to Govt. imposing various restrictions in the raw cotton / cotton yarn exports which has
been described further.

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5.11 RATES OF THE INTERNATIONAL COTTON YARN
THROUGHOUT THE YEAR 2009-2010
DATE COT LOOK INDEX A(US
CENTS PER LBS)
4/1/2009 54.6
16/04/2009 55.4
02/05/2009 59.6
21/05/2009 61.45
02/06/2009 62.7
20/06/2009 61.85
02/07/2009 61.45
14/07/2009 66.15
04/08/2009 63.9
28/08/2009 62.05
02/09/2009 63.55
18/09/2009 62.25
02/10/2009 64.35
21/10/2009 67.4
03/11/2009 69.4
19/11/2009 71.65
02/12/2009 74.85
19/12/2009 78.2
01/01/2010 78.45
18/01/2010 77.25
02/02/2010 75.35
25/02/2010 84.65
04/03/2010 86.05
22/03/2010 86.7
31/03/2010 86
Source: Vardhman Textiles Ltd.

Interpretation:
As it can be analyzed from the graph, the prices of the cot Look Index A are not expected
to reduce in the near future based on the trend of the international cotton prices.

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5.12 RATES OF THE DOMESTIC COTTON YARN THROUGHOUT
THE YEAR 2009-2010
Date COTTON YARN (COUNT 30)
1/4/2009 120
15/4/2009 125
30/4/2009 124
15/05/2009 129
30/05/2009 130
15/06/2009 130
30/06/2009 128
15/07/2009 130
30/07/2009 130
15/08/2009 130
30/08/2009 130
15/09/2009 126
30/09/2009 126
15/10/2009 126
30/10/2009 130
15/11/2009 135
30/11/2009 140
15/12/2009 153
30/12/2009 153
15/01/2010 153
30/01/2010 160
15/02/2010 154
28/02/2010 155
15/03/2010 152
31/03/2010 170
Source: Vardhman Textiles Ltd.

1
Interpretation:
It can be analyzed from the graph:-
The prices of the cotton yarns are not expected to reduce. The price of the cotton yarn in
domestic market has also shown a constant increasing trend in the prices.

1
5.13 RATES OF THE INTERNATIONAL COTTON YARN
THROUGHOUT THE YEAR 2009-2010
Date COTTON YARN (COUNT 30
USD)
27/03/2009 2.3
17/4/2009 2.28
13/5/2009 2.27
18/05/2009 2.4
19/05/2009 2.32
15/06/2009 2.4
20/06/2009 2.32
22/06/2009 2.32
04/07/2009 2.32
14/07/2009 2.32
18/07/2009 2.32
21/07/2009 2.32
27/08/2009 2.51
21/09/2009 2.51
15/10/2009 2.61
15/11/2009 2.66
30/12/2009 2.81
25/01/2010 3.18
15/02/2010 3.24
11/03/2010 3.3

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Interpretation:
It can be analyzed from the graph:-
On the same pattern of domestic and international cotton + domestic cotton yarn, the prices
of the cotton yarns are not expected to reduce. The price of the cotton yarn in international
market has increased continuously over the period of last few years.

1
5.14
World Demand & Supply Situation
Quantity in million Metric tons

Year
Beginning 03-04 04-05 05-06 06-07 07-08 08-09 09-10*
August 1
World
Beginning 10.48 8.71 11.89 12.65 12.91 12.68 12.73

stock
World
Cotton 20.96 27.00 25.68 26.79 26.05 23.42 22.06

Production
World
Cotton 21.74 23.58 24.99 26.45 26.39 23.41 24.37

Consumption
World
Cotton 7.24 7.75 9.73 8.10 8.36 6.54 7.51

Exports
World
Ending 8.71 11.62 12.65 12.91 12.68 12.73 10.42

stocks
As per latest ICAC release dates 3rd may 2010 projected

1
Interpretation:
It can be analyzed from the graph the cotton production came down but the consumption
on the other hand increased, resulting in rise in price in international market. Further, the
exports increased and this led to rise in price in domestic market.

1
5.15
WORLD COTTON PRICES
Monthly average Cotlook A Index (FE) from 2004-05 onwards
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
FE Index in US Cents per lb.
August 51.91 53.23 59.88 66.62 78.04 64.14
September 55.03 53.94 58.82 68.12 77.09 63.99
October 50.89 57.74 57.03 68.93 62.30 66.82
November 47.71 55.87 57.39 69.68 54.96 71.78
December 47.51 56.09 59.43 69.52 55.47 76.78

January 50.23 58.36 59.06 73.21 57.71 77.39

February 48.69 59.66 57.86 75.05 55.21 80.05

March 55.34 57.59 58.42 80.18 51.50 85.80

April 55.99 56.23 57.13 75.44 56.78 88.08
May 54.90 54.35 55.57 74.12 61.95 90.07
June 52.66 55.14 60.61 77.04 61.39 93.04
July 53.17 55.42 67.84 77.29 64.80 -
Source: USDA

Interpretation:
As it can be seen from the table presented above, the price of raw cotton increased from
Oct. 2009 in international market.

1
5.16 Government restrictions on raw cotton exports to stabilize prices - 9th
April 2010
India, the world's second largest cotton producer, exported 2.36 million bales (of 170 kg each) of
cotton last season.

Raw cotton prices were ruling at about Rs 28,300 per candy (356 kg) in the month of April 2010
from Rs 22,000 per candy for October 2009. However, ideally prices should not be more than Rs
20,000-22,000 a candy as this year (September 2009-October 2010), cotton production in India is
expected to be about 30 million bales, against 29 million bales last year. The government
restricted exports of raw cotton to cool down prices of the fiber in the domestic market using
various measures as detailed below:

The government had earlier imposed a duty of Rs 2,500 a tonne on raw cotton exports with effect
from April 9, to check the commodity’s price. Besides this, Govt. imposed a three per cent duty
on export of cotton waste.

On July 22, 2008, the Directorate General of Foreign Trade (DGFT) had made it mandatory to
register contracts for cotton exports with the Textiles Commissioner. The Textiles Ministry
suspended the mandatory pre-shipment contracts registration of raw cotton and cotton waste
indefinitely with effect from April 19, 2010, till further orders. The move was aimed at
controlling the rising prices of cotton in the domestic market.

However, the restrictions did not imply on cotton already registered for exports. For the first few
months of the current cotton season (October-September), about 80 lakh bales were already
registered for exports with the Textiles Commissioner.
Due to Govt. putting checks on cotton exports the prices of raw cotton had seen minor correction
in the domestic market. Prices have come down from Rs 30,000 a candy (356 kg), to about Rs
29,000 a candy of cotton. The detailed data is given in below table:

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Raw Cotton Prices:

RAW BEFORE AFTER Difference

COTTON (8 April,2010) (15 April,2010)
Price 29000 28200 800

Table:

Figure:

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5.17 Ban on raw cotton exports:

In a late night notification issued on Monday 19th April 2010, the government suspended
registration of raw cotton export shipments indefinitely. The contracts registered with the
Textiles Commissioner, for countries such as China, Bangladesh, Indonesia and Pakistan, till
April 8, 2010, however, was kept outside the purview of the ban. With a view to putting a check
on the spiralling cotton prices, the Government had earlier imposed export duty of Rs 2,500 a
tonne on raw cotton and three per cent of the free-on-board value of cotton waste. The duty came
into effect from April 9th 2010.

Even while the world production of raw cotton dipped by about five per cent, the production of
raw cotton in the country rose due to a 40-per-cent increase in minimum support price (MSP) of
raw cotton in 2008-09.

The ban on export of raw cotton announced by the Union Government to curb the rise in the
price of the commodity in the domestic market was not showing a significant impact, as export
contracts worth more than 79 lakh bales were already registered with the Textiles Commissioner
before the notification of cotton ban came into effects.

India generally exports up to 8 million bales of raw cotton every year. However, last year i.e.
2009-10, the exports were even low at about 4.2 million bales. Due to Govt. putting checks on
cotton exports the prices of raw cotton had seen minor correction in the domestic market. Prices
have come down from Rs 30,000 a candy (370 kg), to about Rs 28300 a candy of cotton. The
detailed data is given in below table:

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Affect On Raw Cotton Prices:
COTTON Rates before ban Rates after ban Change
(Shanker-6) (Rs.) (Rs.) (Rs.)
COTTON 28700 per candy 28000 per candy 700
(Shanker-6)

Interpretation:
The immediate effect of Ban on exports of Raw Cotton is easily visible through above
fluctuation in prices of raw Cotton .As it is depicted Above on 19th April, before the ban,
price was Rs.28700.while After the ban, it came down to Rs.28000.

1
 5.18 Effect of ban on cotton exports by Indian Govt. on Other Economies

➢ An Indian ban on cotton exports has forced Pakistani buyers to look for alternative supplies,
traders said on Thursday, and caused prices to soar and endanger the prospects of the country’s
key textile industry.

➢ Pakistani importers have booked orders for 300,000 bales in recent days, after India stopped
registering new contracts for exports from April 19, to control soaring prices, said Naseem
Usman, chairman of the Karachi-based Cotton Brokers Forum.

➢ Cotton spot rates ex-Karachi were quoted at 6,800 Pakistani rupees ($80.95) per maund (37.32
kg) on Wednesday, a rise of 1,200 rupees over the past month or so, according to cotton
officials. “The Indian decision has created a crisis especially for those who delayed the decision
to import and now find themselves in trouble,” Usman said.

➢ Domestic consumption fluctuates between 14 and 16 million bales a year.

➢ With an estimated 12.70 million bales from the 2009/10 crop, Pakistan faces a shortfall of about
3 million bales, and was relying heavily on neighbouring India to meet much of its needs until
late-July, when the new crop will start arriving. Pakistani millers with no cover for the next 2-3
months were now buying from other sources such as West Africa, Central Asia and the US
dealers said.

➢ Most supplies would likely come from West Africa, which is still attractive price-wise, another
trader, Ayub Usman, said from Faisalabad, a city known as Pakistan’s textile capital.

➢ World 2009/10 cotton ending stocks will slump almost 20 per cent year-on-year because of
lower output in top consumer China and increased consumption in India and Turkey among
others, according to influential industry analyst Cotlook.

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 5.19 Govt. decision to control cotton yarn exports

➢ Cotton yarn spinners and exporters came down heavily on the Government's decision to control
the export of cotton yarn by announcing registration of cotton yarn exports with immediate effect
and imposition of prohibitive duty on export of the same.

➢ The cotton yarn spinners and exporters criticized the Government's decision to control the export
of cotton yarn. In a dramatic move, the Government withdrew the 7.67% concession (exports
benefit) given to cotton yarn exporters under the Duty Entitlement Pass Book (DEPB) scheme
vide notification dated 21.04.2010, in a bid to rein in the prices of the textile product, which has
shot up abnormally in recent months, which exasperated the apparel exporters. The decision was
aimed at reducing the exporters’ margin by taking away the benefit.

➢ Similarly, the Government withdrew the 4% concession (exports benefit) given to cotton yarn
exporters under the Duty Drawback Scheme vide notification dated 29.04.2010.

➢ In order to moderate the yarn prices in the domestic market, the Central Government came out
with measures including suspension of various exports benefit available for cotton yarn exports,
imposing a prohibitive duty on the export of raw cotton and introduction of a mechanism for
registration of cotton yarn contracts. This has certainly led to some reduction in the average rates
of the cotton yarn available for domestic market as due to the various restrictions exercised by
Govt. the supply of cotton yarn for exports has reduced leading to supply being available for
domestic market.
Further, the cotton yarn manufacturers have committed to Govt. that on an average the prices of
cotton yarn in the domestic market will be reduced by at least Rs. 5/- per kg. in the short run and
Rs. 10-15/- in the long run.

1
5.20 PRIMARY DATA ANALYSIS & INTERPRETATION:
1) Table: shows the source of supply of raw cotton

percentag
response no.of respondents e

direct from the farmers 1 10

from intermediaries/middlemen 9 90

(Graph 1)

Interpretation:
From the above graph it shows that 90% of the raw cotton is supplied by
intermediaries/middlemen and only 10% is supplied directly by the farmers to the suppliers of
Vardhman.

1
 2) Table: shows, whether prices are manipulated by the farmers or not

No. of
response respondents contribution mean score

strongly agree(5) 1 5

agree(4) 2 8

3.1
neutral(3) 4 12

disagree(2) 3 6

strongly disagree(1) 0 0

Interpretation:
Above table shows that the suppliers are neutral on the view point of price manipulation by the
farmers, as mean score, shown above, is 3.1.

1
3) Table: shows the causes of fluctuation in raw cotton prices

%age of
response no. of respondents respondents

global demand & supply 5 50%

local demand & supply 7 70%

currency fluctuation 5 50%

power generation 3 30%
irrigation & farming facilities 6 60%
government policies & subsidies 7 70%

yarn demand 1 10%

(Graph 2)

Interpretation:
Above graph shows that 7 out of 10 suppliers are of view that local demand & supply and govt.
policies & subsidies are the main causes of fluctuations in raw cotton prices, where as 6 out of 10
suppliers are of view that causes are irrigation & farming facilities.

4) Table: shows prices are fallen below minimum support price.

%age of
response no.of respondents respondents

yes 3 30

no 7 70

(Graph 3)

1
Interpretation:
From above graph it is shown that 70% of suppliers are view point that cotton prices have not
fallen below minimum support price.

1
5) Table: shows environment which affects on cotton prices.

Response no.of respondents %age of respondents

political 4 16

social 2 8

biological 9 36

labor 4 16

Land 6 24

(Graph 4)

Interpretation:
Above chart shows that the major environment which affects the cotton prices is biological
environment which is 36% and least affecting environment is social.
6) Table: shows basis on which customer buys the product.

no. of respondents
Response (n=10) %age of respondents

price 6 27

quality 10 46

on time delivery 6 27

(Graph 5)

1
Interpretation:
It can be analyzed from the above chart quality is the major factor to buy the product by the
customers, whereas on time delivery and price are equal factors responsible for buying the
product.

1
7) Table: shows demand of raw cotton in current season.

no. of respondents %age of

response (n=10) respondents

stable 2 20%

fluctuating 4 40%

increasing 4 40%

decreasing 0 0%

(Graph 6)

Interpretation:
From the above chart it can be analyzed that demand of raw cotton is fluctuating in current
season which is 40%.

1
8) Table: shows time period of maximum supply of raw cotton.

no. of %age of
response respondents respondents

seasonal 9 90

regular 1 10

often 0 0

(Graph 7)

Interpretation:
Above graph shows that 90% of respondents believe that in seasonal period supply of cotton is
maximum, whereas only 10% respondents believe that supply of cotton remains constant
regularly.

1
9) Table: shows whether the cotton development programs are conducted.

no. of
response respondents %age of respondents

yes 9 90

no 1 10

(Graph 8)

Interpretation:
Above graph shows that 90% respondents says that cotton development programs are conducted.

1
10) Table: whether cotton development programs are beneficial for promoting the cotton
industry.
no. of %age of
response respondents respondents

yes 9 90

no 1 10

(Graph 9)

Interpretation:
As above graph shows that 90% respondent believe that cotton development programs are
beneficial for promoting the industry.

1
11)
No. of %age of
response respondents respondents

yes 10 100

no 0 0
Table: shows whether recession affect on cotton prices.

(Graph 10)

Interpretation:
Above graph shows that 100% respondents agree that recession has affected on cotton prices.

1
12) Table: shows to what extent recession affected the prices of cotton.

no. of mean
response respondents contribution score

very largely(5) 1 5

largely(4) 9 36
4.1
neutral(3) 0 0

less(2) 0 0

very less(1) 0 0

Interpretation:
Above table shows that recession has largely affected on cotton prices as mean score is 4.1.

13) Table: shows the opinion of suppliers in context of fluctuation of cotton price in future.

no. of mean
response respondents contribution score

strongly agree(5) 1 5

agree(4) 7 28
3.9
neutral(3) 2 6

disagree(2) 0 0

strongly disagree(1) 0 0

Interpretation:
As above table shows that cotton prices will fluctuate in future as mean score is 3.9 which is
towards the agree statement.

1
 CHAPETR- 6
6.1 FINDINGS:
1) The total cultivated land came down due to a delayed monsoon. Cotton exports are freely
allowed, and rightly so, this makes domestic cotton prices follow international prices. Cotton
accounts for 65-70 per cent of the yarn cost and a 35 per cent increase in cotton prices means a
20 per cent increase in yarn prices.
2) Power constitutes the second most important element of cost; this has gone up by 30- 40 per
cent due to power cuts and the need to buy power from the open market or generate it using
liquid fuels. For mills that pay the full cost of power, it accounts for 15 per cent of the yarn cost
in normal conditions; in today's situation, it is as high as 20-21 per cent.
3) Labor costs have gone up as mills are forced to pay a wage much higher than NREGA
(National Rural Employment Guarantee Act) to get workforce. Most mills are forced to pay
daily wages of over Rs 200, against Rs 110-120 that they were paying earlier. Wages have gone
up from 4 per cent of costs to 6 per cent now. Mills are rapidly adopting technology to reduce
worker dependence.
4) The profitability of mills was minus 7-8 per cent during the last 18 months, one of the reasons
being the incentive for cotton exports. Profitability has moved up to 5 per cent, notwithstanding
the good price realization in yarn, on account of high input costs.
5) Various factors, such as gas shortage in Bangladesh, political instability in Pakistan, no revival
of closed capacity during the last 18 months and labor shortage in China, will ensure that global
yarn prices will move north for some time to come, till new capacity is created.
6) There is going to be an increased shortage of yarn in days to come, as the per capita consumption
of textiles in both India and China is growing rapidly with the per capita income.
7) Biological factors are considered as the most important factors which influence cotton prices.
8) Demand is fluctuating as the prices are not stable and in future prices are lightly to rise.

3
 6.2 FACTORS WHICH INFUENCE THE MARKET
1. Opening Stock
2. Production
3. Consumption
4. Exports & Imports
5. Minimum Support Price

1. OPENING STOCK: -
Opening Stock is the stock of the fibre in the beginning of the cotton season. Logically the
opening stock position will affect the price in the market. Stock position effects perception of the
buyer and seller. The price should depend upon the Opening Stock position of the Commodity. If
the opening stock is going down the there should be bullish trend on the prices. However, if we
see the world ending stock since 2005-06 there is no big change in the same except for the year
2009-10. But the price of the fibre has moved upwards consistently.

2. PRODUCTION: -
Production is act of manufacturing goods. After analyzing the table, it has been found that
worldwide production dropped was 10% in 2007-08 and Consumption Dropped was 10%.But
the difference between in consumption pattern of china is going up and it is subsidized the
import and this shortage fulfilled by India and U.S. Major gap of production & consumption of
china is 32%.The total consumption of china is 40% of the world consumption.

3. CONSUMPTION: -
Textile Industries more or less closed down by 50% in European Countries because of the social
responsibility of labour and insurance commitment. In European Countries, labour cost per hour
is €12-14 as compared to Rs.135 per eight hour in India. There is lot of difference between two
countries. So that’s why Europe, USA Stores like Old Navy, Spencer, Wall mart Have shifter
their garments orders to Bangladesh, India, Pakistan and China.

4. EXPORT AND IMPORT: -

1
 As we have seen in the Export annexure of Export data of the world, we found that United States
is the single largest Cotton Exporter Country in the world, so they can manipulates the markets.
Government of U.S.A very supports the farmer by giving them subsidy so the farmer can’t affect
by the market fluctuation. They have loan account where farmer put their Cotton at guarantee
price by the government. If the prices falls below the guarantee prices then the American
government bears the losses. If the prices go above the guarantee prices and then advantages
goes to the farmers.

5. MINIMUM SUPPORT PRICE: -

Minimum price for a product, established by the government and support by payments to
producers in the events that the market price falls below the specified minimum price.

CHAPTER- 7

1
CONCLUSION
From the study it is concluded that government restrictions played a vital role in controlling the
cotton and cotton yarn prices. In order to control the rising in international export of cotton yarn,
government had to impose restrictions, which resulted in fall in price. Study also concludes that
there will be rise in cotton prices in future as well. Biological factors and other factors have also
been responsible for fluctuation in prices of cotton.

CHAPTER 8
BIBLIOGRAPHY

1
Ge Yuanlong, Wang H.Holly, Ahn Sang, “Cotton market integration and the impact of China's
new exchange rate regime” 10 MAY 2010 http://onlinelibrary.wiley.com/doi/10.1111/j.1574-
0864.2005.00415.x/abstract

Keef Stephen, Zhu Hui, “The Monday effect in U.S. cotton prices” 17 JUL 2009
http://onlinelibrary.wiley.com/doi/10.1111/j.1574-0862.2010.00456.x/abstract
Acajou “Textiles 2008: Blueprint For Survival”Textile World. Atlanta: Jan/Feb 2008.
Vol. 158, Iss. 1; pg. 22, 9 pgs http://proquest.umi.com/pqdweb?index

Athalye, ” The Global Textile and Clothing Industry post the Agreement on Textiles and
Clothing” World Trade Organization Geneva, Switzerland.

Gupta,”India, US set to explore textile market.” Knight Ridder Tribune Business News.
Washington: Mar 8, 2006. Pg
http://proquest.umi.com/pqdweb?
did=999480491&sid=5&Fmt=3&clientId=129893&RQT=309&Name=PQD

Curran, “China Will Limit Textile Exports Amid Trade Rift” Wall Street Journal. (Eastern
edition). New York, N.Y.: Jun 21, 2005.pg. A.14
http://proquest.umi.com/pqdweb?
did=856486841&sid=1&Fmt=2&clientId=129893&RQT=309&VName=PQD

Ray, “Effective supply value chain based on competence success” Supply Chain
Management. Bradford: 2010. Vol. 15, Iss. 2; pg. 129 http://proquest.umi.com/pqdweb?index

Anderson, Valenzuela, “Protection has a price”Far Eastern Economic Review. Hong Kong:
Aug 29, 1996. Vol. 159, Iss. 35; pg. 44, 1 pgs
http://proquest.umi.com/pqdweb?
did=10139722&sid=3&Fmt=2&clientId=129893&RQT=309&VName=PQD
http://www.vardhman.com/annual-report-textiles08-09.pdf
http://www.vardhman.com/annual-report-textiles07-08.pdf
http://www.vardhman.com/annual-report-textiles09-10.pdf
http://www.vardhman.com/investor_financialperformance.asp

2
http://texprocil.com/cotton.htm
http://www.indiantextilejournal.com/articles/FAdetails.asp?id=2737
http://textilescommittee.nic.in/backround.html
http://www.kapasindia.com/tmconline/root/common/GeneralCottonCul.asp
http://www.cotcorp.gov.in/current_cotton.asp#world
http://www.cotlook.com/index2.php
http://www.cottonusa.org/files/economicData/CottonWMT-JUNE-2010.pdf
http://www.dailytimes.com.pk/default.asp?page=2010\05\12\story_12-5-2010_pg5_13
http://www.hindu.com/2010/04/23/stories/2010042361371700.htm
http://economictimes.indiatimes.com/markets/commodities/Cotton-prices-rule-
firm/articleshow/5784295.cms
http://www.unctad.org/infocomm/anglais/cotton/prices.htm
http://cotcorp.gov.in/statistics.asp
http://en.wikipedia.org/w/index.php?title=Special
%3ASearch&redirs=0&search=definition+of+fluctuation&fulltext=Search&ns0=1

SCHEDULE

Name:

Occupation:

2
Address:

Contact No.:

Q1) From where do you get raw cotton?

Direct from farmers

From intermediaries or middlemen

Q2) Do you think that price is manipulated by the farmers?

Strongly agree

Agree

Neither agrees nor disagrees

Disagree

Strongly disagree

Q3) What according to you are causes of fluctuations of raw cotton?

Global demand & supply

Local demand and supply

Currency fluctuation

1
 Power generation

Irrigation and farming facilities

Government policies & subsidies

Yarn demand

Q4) Have the prices of cotton fallen below the minimum support price in the state during the
current season?

Yes

No

Q5) Which of the following environment largely affects cotton prices?

Political

Social & cultural

Biological

Labor

Land

3
Q6) On what basis your customers buy your product?

Price

Quality

On time delivery

Q7) What is the demand of cotton in current season?

Stable

Fluctuating

Increasing

Declining

Q8) When is your supply maximum?

Seasonal

Regular

Often

Q9) Are there any cotton development programs to promote the industry?

Yes

1
 No

Q10) If yes, then its beneficial?

Yes

No

Q11) Has recession affected on the prices of cotton?

Yes

No

Q12) If yes then to what extent?

Very large

Large

Neutral

Small

Very small

3
Q13) Do you think that prices of cotton will fluctuate in future?

Strongly agree

Agree

Neither agrees nor disagrees

Disagree

Strongly disagree