Textile industry demands continuance of interest subvention

Even after a slash in import duty on cotton, the textile industry seems to be still reeling under high cost pressures.

To ease the tightened noose on input costs, Confederation of Indian Textile Industry (CITI) has made representations with the union Ministry of Textiles for continuance of interest subvention on packing credit across the value chain in the industry.

The industry which contributes around 17 per cent to total exports had been enjoying a reduction by 4 per cent rate of interest on packing credit.

However, with the Reserve Bank of India (RBI) issuing a notice for a premature termination of the interest subvention from September 30, 2008 onwards, instead of the earlier deadline of March 31, 2009, the exporters will have to access credit at market rates.

 

According to D K Nair, secretary general of CITI, textile exporters get a packing credit (which works as their working capital) on the basis of their order book around 180 days before shipment and 90 days after shipment.

“The packing credit was allowed at a rate of interest lesser by 4 per cent under the subvention announced by the RBI. The credit was used as a working capital to handle shipment till the final payment is made. With the interest rates rising continually, the exporters will now have to pay rate of interest that prevails in the market,” said Nair.

Moreover, due to global slowdown the exporters are not able to pass on the impact to the international market and will have to take a hit on their bottomlines.

“The apex bank is discontinuing the interest subvention on the grounds that the rupee has depreciated in the recent times and allowed exporters a chance to earn more internationally. However, almost all the exporters had made forward covers for 12-18 months on orders at the prevailing exchange rates when the rupee was appreciating. These covers are not likely to mature before March 2009 and hence exporters like us will not be able to enjoy better exchange rates inspite of a depreciating rupee,” said S N Rangaiah, general manager (finance) at Gokaldas Exports Ltd.

Rangaiah added that if the exporters are deprived of the 4 per cent interest subvention, they might end up taking a hit on their bottomlines. “Our bottomlines will definitely take a hit of 2-3 per cent if RBI sticks to its decision,” he said.

Having submitted its representations to various ministries in the central government, CITI is hopeful that the interest subvention will continue till March 31, 2009 as decided earlier when the benefit was announced last year.

CITI is also expecting lesser exports in textiles this year as compared to $ 20.5 billion (Rs. 8,000 crore approx.) last year.