The high cost of finance has been a major barrier for growth of the textiles sector and in a bid to overcome this textile ministry is contemplating interest subvention of 3.5 per cent on the working capital loan for garment companies.
Rashmi Verma, textile secretary said that in order to boost the textile sector, the government has announced several incentives in the last few months. The major area of concern, however, remained high cost of production because of elevated interest rates on working capital.
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.
According to trade sources, borrowing working capital at high interest rate keeps product prices up, resulting in lowering India’s competitiveness in the world market. As a consequence, countries with lower interest rate regimes, such Bangladesh, Vietnam, Ethiopia and Indonesia, are taking advantage of growth in the global textiles sector.
Despite repeated efforts by the government to promote export through various sops, only about 40 billion US dollar of textiles per year have been exported by India to the global market over the past several years. In fact, this year, textile imports are expected to decline to 40 billion US dollar from 42 billion US dollar last year, mostly because of the global economic slowdown.
To address the concern, the textiles ministry has sent a proposal to the finance ministry to chalk out working capital availability at a maximum interest rate of seven 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.
