If policy space used judiciously, sector can re-employ 1 mn workers

06 Feb '09

6 min read

According to news paper reports, a majority of companies that have approached the CDR Cell for debt restructuring during the last six months are from the textiles sector.

Uncompetitive Raw Material and input costs:
Minimum Support Prices announced for cotton year 2008-09 are unreasonably high and these have pushed up our cotton prices 15-20 percent higher than international prices. More than 72 lakh bales have been bought by procurement agencies and they have sold less than 10 lakh bales so far.

Huge Government funds are locked in procurement and carrying charges. These quantities will ultimately have to be disposed of at significant loss to be compensated by Government. Prompt disposal of procured cotton will reduce carrying charges and generate funds for further procurement, thus helping both farmers and the industry. There is also higher incidence of cost for other fibres and a serious shortage and cost escalation in power.

Volatility in Currency Movements:
The unprecedented currency appreciation during 2007-08 had serious impact on our T&C exports. A number of units, especially in the SME segment, were persuaded by banks to purchase Forex Derivatives to tide over the situation. While the banks vexed eloquent on the perceived advantages of these products, the risks involved were not explained. Such units have now lost huge amounts of money, since rupee has depreciated considerably, contrary to expectations.

Urgent remedial measures required:
A comprehensible package with the following remedial measures and valid for a period of two years is urgently required to effectively address the issues explained above and to help the T&C industry to achieve its potential for growth in production, exports and employment generation:

1)Allow two year moratorium on repayment of principal amounts against term loans, in order to avoid defaults and loans turning into NPAs.
2)Reinstate the DBK rates that prevailed before the reduction effected in September 2008, for all T&C products.
3)In the case of service tax, provide exemptions to exporters, in stead of the current cumbersome procedure of refunding.
4)Refund all accumulated cenvat credit or alternatively provide interest-free loan against them.
5)Refund State level duties of 4-6 percent. Until GST is implemented, the refund has to be made by Central Government, since multiple State Governments will be involved in most transactions.
6)Provide PCFC liberally and restore interest subvention at 4% on export credit without a floor ceiling.
7)To address the complex problem of forex derivatives, ask banks either to waive 50 percent of the amounts involved or to provide loans to the T&C units at 6 percent interest rate for meeting the expenses.
8)In order to improve the price competitiveness of man-made fibres, withdraw import duty on all man-made fibres .
9)Withdraw Customs and Excise Duties on Naphtha, Furnace Oil and HSD for captive power plants of T&C units.

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