Aiming to boost declining exports, the Union Textile Ministry is considering a 3.5 per cent interest subvention on the working capital loan of garment companies.
This is an option that the government sees as a possible solution to combating the stiff competition in the global market. The high cost of production has been a major hurdle for growth of the textiles sector.
“In order to boost the textile sector, we have announced several incentives in the past few months. The major area of concern, however, remains the high cost of production because of elevated interest rates on working capital,” said Rashmi Verma, Secretary, Union Textiles Ministry.
“Some interest subvention has to be given to the textile sector to make India’s products competitive vis-à-vis other countries such as Bangladesh and Vietnam, where capital is availed to the textiles players at much lower interest rate than those here,” she added.
According to sources, borrowing working capital at high interest rates keeps product prices high, leading to lowering in India’s competitiveness in the world market. Hence, countries with lower interest rates, like Bangladesh, Vietnam, Ethiopia and Indonesia, are able to make the most of the growth in the global textiles sector.
In spite of several initiatives by the government to pull up exports with the help of various sops, India has over the past several years been able to export textile worth only $40 billion. So much so, textile exports are set to decline even further this year, owing to the worldwide economic slowdown. Keeping this in mind, the ministry has sent a proposal to the Finance Ministry to work out working capital availability at a maximum interest rate of 7 per cent, Verma said.
“The textile ministry is of the view that the working capital should be made available at attractive rates — such as prevalent in Bangladesh or Vietnam, if not less, to make India competitive,” she added.
According to recent estimates, the textile industry contributes nearly 7 per cent to India’s gross domestic product, and 13 per cent to merchandised exports. It is in fact one of the highest employer in this country, second only to agriculture.
The Union government recently introduced its amended Technology Upgradation Fund Scheme (TUFS), in place of the existing Revised Restructured Technology Upgradation Fund Scheme (RRTUFS) for technology upgradation of the textiles industry, with effect from the date of notification of the scheme.
A budget provision of Rs 17,822 crore has been approved, of which Rs 12,671 crore is for committed liabilities under the ongoing scheme, and Rs 5,151 crore is for new cases under ATUFS. The amended scheme would give a boost to “Make in India” in the textiles sector. It is expected to attract investment to the tune of Rs 1 lakh crore and create over 30 lakh jobs.
The government has also announced inclusion of man-made fibre for up to 15 per cent in exports to get benefit of duty drawbacks.