The Hindu Business Line : Textile industry seeks continuation of interest sops

Justifying the need to keep in place the interest rate subvention, the APEC Chairman, Mr Rakesh Vaid enumerated the support being extended by low-cost rivals in the subcontinent and also by China.

G. Srinivasan

New Delhi, Aug. 21 The reported missive of the Union Commerce and Industry Minister, Mr Kamal Nath, to the Prime Minister, Dr Manmohan Singh, for continuation of the 4 per cent interest subvention to textile exports, even as rupee is depreciating against the US dollar continuously by more than 11 per cent since the beginning of the current fiscal, has raked up several issues impinging on the future prospects of the textile industry.

The see-saw on interest subvention of 2 per cent for pre-shipment and post-shipment credit for textiles (including handloom), readymade garments in the first part of last fiscal and additional subvention of 2 per cent from November 1, 2007 incorporating all categories of textiles and carpets but excluding man-made fibre in the wake of steady appreciation of the rupee till end-March 31, 2008 and the continuation of the 4 per cent interest subvention till end-September 2008, with the RBI announcing its termination in its latest monetary and credit policy review had tantalised the textile industry so much that it is now wringing its hand hoping for continuation of interest subvention and a higher drawback rate.

The Apparel Export Promotion Council (AEPC) Chairman, Mr Rakesh Vaid, gave a memorandum to the Union Finance Minister, Mr P. Chidambaram, on Tuesday, listing out reasons as to how the high growth apparel industry has been slipping in the current fiscal, because of several disabilities plaguing the textile sector in general and the readymade garment (RMG) segment in particular.

The apparel export industry is the only segment in manufacturing that could absorb uneducated and unemployed people displaced from agriculture; the authorities need to be alive to the problems plaguing this segment, he added.

Industry sources told Business Line here that though India’s textile exports had shot up from $14.03 billion in 2004-05 to $20.25 billion in 2007-08, the hype built on the potentially improved performance in the post-quota regime since 2004 remained largely a mirage, due to a combination of adverse factors that eroded the competitiveness of Indian textiles both in price and quality with China, Pakistan and Bangladesh making steady inroads into India’s major market in the US.

The sources say that the 9.4 per cent growth in textile exports in dollar terms during 2007-08 has to be seen against the backdrop of exports growing barely by 1.5 per cent in the first seven months of the last fiscal. The situation was salvaged because of proactive measures including revised drawback rates and interest rate subvention to exporters in the wake of high appreciation of the rupee.

Justifying the need to keep in place the interest rate subvention particularly as India’s market share in the US and developed country markets is declining during the first half of this year with even Bangladesh overtaking India for the first time, Mr Vaid enumerated the support being extended by low-cost rivals in the subcontinent and also by China.

He said Islamabad, which had earlier recanted the export incentive scheme at 6 per cent by way of R&D assistance, has now reintroduced the same for garments.

He said China too recently announced adjustment of export tax rebate on textiles, pesticides and other commodities effective from August 1, 2008. The increase in export tax rebate on part of textiles and clothing from 11 to 13 per cent would help raking in additional profit of $2.6 billion by the Chinese textile industry.

Considering the fact that high-end readymade garments are churned out with high quality/high value inputs and given the high inflation and escalating input costs including power and other essential ingredients for manufacture, Mr Vaid pleaded for a re-look at the prospective termination of interest subvention by end-September 2008 and also a higher drawback rates for the industry.

He said that as three-fourth of exports in RMGs are cotton-based and given the high cost of raw cotton, the Council has pleaded for fixing a higher drawback rate at 14 per cent for cotton garments so that the industry could reverse its sliding growth performance.

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