The ongoing eclipse in the sector all started from the beginning of the year 2007 when Indian rupee steeply appreciated against the US dollar. Seems it was not the end of bad news for the sector, before rupee started depreciating, the prices of the cotton skyrocketed into a new height, there was price increase of over 40% in India within a period of less than 6 months ending September 2008. Exacerbating the sector more, increase in interest rates with steep power cuts also played a pivotal role. Inflation touched 13-year high 12.01% in the week ending 26 July, and the repo rate 9 per cent.

If there was any good news that came for the Northeastern states, it came in November, with the Government's approval of the Comprehensive Development Scheme as a Central Sector Plan Scheme during the XI Five Year Plan. Under the scheme, Sibsagar in Assam, Varanasi and Moradabad in Uttar Pradesh, and Narasapur in Andhra Pradesh, were allocated Rs.70.00 crore each to meet the changing market demand both at domestic and international market and for technology up-gradation. 

The first fiscal stimulus package declared by Government on December with slew of measures like 2% interest rate subvention in pre-and post-shipment credit for textiles up to March 31, 2009; followed by infusing Rs.1,100 crore to ensure full refund of Terminal Excise duty/CST, also failed to bail out the shrinking sector. Other measures, the allocation of Rs.350 crore each for export incentive schemes and for back-up guarantee for ECGC for exports to difficult markets/products; service tax refund on foreign agent commissions of up to 10% of FOB value of exports, also botched to revive the sector. 

According to trade bodies, both the declared packages are negligible and insufficient compared to competing countries like China and Pakistan. The two packages ignored the two-year moratorium period demand for repayment of loans, enhancement of credit limit from three months to nine months, 2% increase in the interest subvention for export credit, that the industry was hoping was not addressed. 

It has further stated that to protect the textile industry a clear cut guideline is essential for availing two year moratorium for repayment of loans, lest it should become NPAs; along with it a special package for working capital is also required to manage the abrupt increase in the minimum support price for cotton.