Govt likely to finalise sops for textile industry

The government is finalising a package of sops, including interest rate subvention on export credit, for employment intensive industries like textiles.

Interest rate subvention to loans for exports, where the government was subsidising interest cost by as much as 4 per cent, was withdrawn on October 1 this year, as it was felt the fall in the rupee vis-à-vis the dollar offered a natural competitive advantage to exporters.

Government sources said the Committee of Officers, headed by Finance Secretary Arun Ramanathan, is discussing several measures to ensure that the textile sector, which employs at least 5 million people, is not impacted by the slump in demand from key international markets like the United States and Europe.

According to the Federation of Indian Export Organisations, exports from employment intensive sectors like carpets and man-made yarn have dipped by 32 per cent and 17 per cent, respectively, during April-September 2008. Handicrafts and cotton yarn exports also fell around 20 per cent in the same period.

“The labour ministry had recently said that employment intensive sectors should be given additional benefits so as to ensure that there are no job losses. Amongst many other proposals, there are discussions going on to provide interest rate subvention on export credit,” said a government official in the know.

Another official told Business Standard that the textile ministry would soon present a note to the panel of government officers, specifying the impact on the exchequer due to the proposed measures.

The sources also said that once the proposals were finalised by the senior government officials, they would be put for the consideration of the committee headed by Prime Minister Manmohan Singh, with Commerce Minister Kamal Nath and Finance Minister P Chidambaram among its other members.

Providing cheaper loans to the textile exporters is one of the strategies to help the sector because at least 50 per cent of the production is sold overseas.

In mid-2007, in the backdrop of a rapidly appreciating rupee against the dollar, the government had provided interest rate subvention of around 2 per cent below the prime lending rate to all exporting sectors.

Later, a further 2 per cent subvention was also given to some sectors, which included textiles, and the measure was extended till March 31, 2009.

However, as the rupee started depreciating rapidly against the greenback, the measure was withdrawn. The government had allocated Rs 600 crore towards this scheme.

Meanwhile, textile manufacturers have been demanding that duty drawback rates, through which indirect tax component in exports is reimbursed, should be increased.

In addition, the industry is also lobbying for reimbursement of state-level duties like those on electricity or octroi, as it contributes around 6 per cent of the production cost. Other key demands include immediate release of Rs 2,000 crore through the Textile Upgradation Fund Scheme.