The government is considering a proposal to extend a sovereign guarantee of Rs 15,000 crore to the Cotton Corporation of India (CCI) to help it raise funds for procuring cotton at the minimum support price (MSP), which is much higher than the rate in the depressed open market.
"We are sending the proposal to the Cabinet," said JN Singh, joint secretary, textiles ministry.
Besides the sovereign guarantee, the ministry is seeking additional Rs 2,065 crore to make up for the losses which the CCI will suffer in the MSP procurement in the crop year beginning October, 2008.
CCI is buying cotton at the MSP of Rs 2,850 per quintal against the open market price of Rs 2,500 per quintal for the popular Shankar-6 variety. The MSP announced by the government in the first week of September was 38-47 per cent higher than the previous year, annoying the textile industry, which has since come under the pressure of global slowdown.
With the government ruling out any cut in the MSP, the CCI has to be given a financial support because over 10 million bales, out of the total output of 32 million bales this year, are expected to land for government procurement. The highest procurement ever by CCI was 2.5 million bales.
"On its own balance-sheet, the CCI can leverage up to Rs 5,000 crore, but it needs much more for the procurement operations," Singh said. While the government agency is expected to suffer a loss of Rs 2,000 crore, its total credit requirement for the entire operations would be quite high.