Cotton prices in the state fell further by around Rs 200 at Rs 3,400 a quintal following the state government's budget announcement of imposing a value added tax (VAT) of 5% on cotton.

The additional tax burden has hit the market sentiment which was already low with the virtual stalling of exports since March 5.

While on the one hand the state government has decided to extend a relief of Rs2,000 crore to around 5 million cotton farmers after crop failure in more than nearly 40 lakh hectares, it took a harsh measure to put 5% VAT on cotton.

Prices which were ruling around Rs4,200 in the first week of March have steadily declined to Rs 3,400 in the current week. "This will only add to economic losses of the already distressed cotton growers," said Kishore Tiwari of Vidarbha Jan Andolan Samiti (VJAS). He has urged the state to roll back the VAT proposed in the budget. In other cotton growing states it was no more than 2%, he claimed.

The director general of foreign trade (DGFT) literally stalled cotton exports by sea and road since March 5 leading to crash in raw cotton prices. VJAS has demanded that the group of ministers (GoM), which is likely to meet on April 3, should review the situation and lift all restrictions on cotton exports.

"When cotton arrival as per data is only 242 lakh bales as against 278 lakhs bales of last year and at least 120 lakh bales awaited in the markets, such restrictions will expose more than 7 million cotton growers, traders and exporters to huge economic losses and will damage Indian cotton trade. Just to protect a few garment manufactures, the DGFT should not be allowed to dictate its terms," said Tiwari.

"When domestic demand is just 20 million bales as against production of 33 million bales there is no reason to restrict exports. The move reeks of corruption," Tiwari alleged. "India, is a major exporter of cotton but a cartel which monopolies the garment export is lobbying for the ban since 2010 although India is signatory to the WTO," Tiwari said.