A Study of Indian Government Policy on Production and Processing of Cotton and Its Implications

India is a major player in international cotton markets as it is the world's second largest cotton producer, consumer and exporter in 2009-2010. In this context, this paper assesses the competitiveness of Indian cotton producers and potential implications for India as a competitor in the world cotton market. This paper developed an updated estimate of the costs of cotton production in India and developed representative farm models for cotton production in three important cotton production states (Gujarat, Maharashtra and Andhra Pradesh) of India. In this research, Rapid Rural Appraisal (RRA) methodology has been adopted to collect information for developing representative farm models. These models are further subjected to stochastic simulation to understand the impact of government policies like subsidies to various inputs on farm level profitability and ultimately on the competitiveness of Indian cotton in international markets. This paper also analyzed the impact of national fiber policy of the government of India on the cotton processing sector in India. The results demonstrate that the net income of the cotton farmers will decrease considerably without the presence of fertilizer subsidies. The study also concludes that if the objectives of the national fiber policy are fulfilled, India will export more of value added cotton products like textiles and garments rather than raw cotton.