Cotton Policy

Summary

Published as the full text of a press statement issued by Shri Ramniwas R. Ruia on 19 December 1956, responding to the Cotton Policy debate in the Lok Sabha, this piece appears as a Forum of Free Enterprise pamphlet. Ruia writes as a cotton trade insider of three generations’ standing — exporter, importer, buyer, seller, consumer, and manufacturer — with over thirty years of direct experience, and opens by asserting his constitutional right as a free citizen to criticise government policy without fear.

Ruia’s central argument is that Government intervention in the cotton forward market in December 1955, specifically the retrospective fixing of a new ceiling price of Rs. 700 within the existing ceiling of Rs. 745, was arbitrary, economically illiterate, and inflicted losses on the very growers and consumers it claimed to protect while inadvertently benefiting middlemen and those with privileged knowledge of official intentions. He reconstructs the sequence: forward prices were running at Rs. 750 when the Government abruptly slashed them to Rs. 700 with retrospective effect, then the Forward Markets Commission (FMC) closed the forward market the same night the Bombay High Court ordered it to convene and decide a fair price independently. The market remained closed from late December 1955 through approximately March 1956 — the peak crop-movement period — during which ready prices continued rising unchecked to and beyond the official ceiling, leaving the forward market functionless. Growers who had to sell their crop during this period received depressed prices while tame traders with accumulated stocks profited. Ruia challenges the Commerce Minister’s characterisation of bear speculators as “unfortunate” victims, arguing they were pure gamblers with no legitimate cotton interest, while the genuine losers — growers forced to sell during the crisis months, merchants, and consumers with legitimate hedging needs — went unacknowledged.

In his prescriptive section, Ruia calls for narrowing the Rs. 350 floor-to-ceiling spread (then Rs. 495 to Rs. 845) to no more than Rs. 150, reducing delivery periods from six to fewer per year, and requiring the Government to announce crop estimates and export quotas transparently at the season’s outset rather than releasing them piecemeal as rumour fodder. He also calls for an independent impartial tribunal to investigate all cotton market transactions from the start of the 1955–56 contract. The statement closes with qualified optimism that the newly appointed Commerce and Industries Minister, Morarji Desai, would bring fairness and rule of law to the trade.

Key points

• The Government retrospectively slashed the cotton forward market ceiling from Rs. 745 to Rs. 700, closing the forward market on the night the Bombay High Court ordered an independent price review — an action Ruia calls constitutionally and commercially improper.

• The forward market remained closed from late December 1955 to approximately March 1956, precisely the peak crop-movement period, destroying the livelihoods of thousands dependent on it.

• During the closure, ready cotton prices rose freely to and above the official ceiling, demonstrating that the government lacked both the will and the means to control ready-market prices while suppressing forward prices.

• Ruia argues the action rewarded bear speculators (pure gamblers) who profited from the price dislocation, while penalising growers who had to liquidate crops at distressed prices and merchants who had hedged legitimately.

• He proposes narrowing the floor-to-ceiling spread from Rs. 350 to Rs. 150, reducing the six delivery periods, and requiring the government to publish crop estimates, consumption figures, and export quotas transparently at the start of each season.

• An independent tribunal to investigate all cotton market dealings from 1955–56 onwards is called for, given the minister’s own admission that a “squeeze” was effected by half a dozen traders.

• Ruia questions the simultaneous June 1956 decision to fix the same ceiling and floor for the 1956–57 crop despite it being estimated 10 per cent above normal — a 33 per cent swing versus the previous drought-hit season.

• The statement defends the right of businessmen to voice constructive criticism of policy, arguing that a functioning democracy requires an informed, articulate citizenry willing to contradict those in power.