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Govt may rationalise interest subsidy to textile mills
08
Oct '15
The Government of India is mulling on reforming the interest subsidy regime across several sectors, including the textile sector, according to media reports.
 
“A large number of subsidies are being given out (by the government) as interest subsidies. This also causes distortion in the interest market,” finance secretary Ratan Watal said at a press conference of secretaries of finance ministry, earlier this week.
 
Indicating the recast of the interest subsidy regime, Watal said, “There are various ways of giving subsidies, many sectors, like textile, have to be given. But then it could go as viability gap funding (VGF), it could go as capital support.”
 
At present, the government provides interest reimbursement (subsidy) of 2 per cent for investment in standalone spinning; 5 per cent for composite spinning, handlooms, silk and garments; and 6 per cent for new shuttle-less looms under the Technology Upgradation Fund Scheme (TUFS), as per the data from the Office of the Textile Commissioner.
 
In addition, there is also capital subsidy ranging between 10 to 30 per cent and a margin money scheme (MMS) under TUFS, which was introduced to enhance the competitiveness of the domestic textile industry by making funds available for upgrading technology at the existing units and also for setting up new units.
 
Since it was introduced in 1999, the scheme has attracted investments of over Rs 2,71,480 crore, resulting in grant of more than Rs 18,000 crore in interest and capital subsidies. Most of the investments under the scheme have taken place in the capital-intensive spinning industry.
 
In Budget 2015-16, finance minister Arun Jaitley reduced allocation for subsidy payment under TUFS to Rs 1,521 crore, as against previous year's amount of Rs 1,864 crore.
 
Earlier this month, RBI governor Raghuram Rajan too had warned that broad-based interest subsidies and loan waivers lead to distorted prices and “the wrong kind of investments”. It now remains to be seen what exactly will the government replace interest subsidy with. (RKS)
 

Fibre2Fashion News Desk – India

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