BUDGET VIEW-India textile makers seek loan repayment moratorium


February 10, 2009

Tue Feb 10, 2009

Indian textile manufacturers have sought a two-year moratorium on repayment of term loans, withdrawal of excise duties on man-made fibres and waiver of service taxes on exports as well as taxes on textile machinery.

The embattled textile industry, reeling under a slowdown in demand and high input costs, also seek to bring domestic cotton prices at par with international prices, an industry body told Reuters, ahead of the interim budget on Feb 16.

Textile firms such as Arvind Ltd, Bombay Dyeing & Manufacturing Co and Gokaldas Exports posted losses in the Oct-Dec quarter.

The Confederation of Indian Textile Industries (CITI) has sought a two year moratorium on repayment of principal amounts against term loans "to avoid defaults and loans turning into non performing assets," it said in a statement.

"It is a significant demand. The money could actually be used for working capital in the short term as availability (of working capital) is a huge issue," said Devangshu Dutta, chief executive of Third Eyesight, a textiles and retail consultancy.

The government can make nationalised banks provide a moratorium, but is tough to say if private banks would follow suit, he added.

CITI is also seeking exemptions in service tax, import duties on man-made fibres and restoration of 4 percent interest rate subsidy on bank loans of exporters.

In October, 2008, the government had withdrawn a 4 percent interest rate subvention granted to textile exporters.

Subsequently, in a stimulus package last December, the federal government extended a two percent interest rate subsidy and said it would provide 14 billion rupees for a technology upgrade funding scheme for textile firms.

"As of now they have restored 2 percent interest rate subsidy, they should restore that fully to further improve competitiveness for textile exporters," said Sunil Khandelwal Chief Financial Officer of Alok Industries.

"A partial reinstatement of interest subvention on export credit that had been withdrawn from October 2008 and some cosmetic changes in duty refunds…do not have the potential to rescue this industry from its current crisis," CITI said.

Alok Industries’ Khandelwal said there was also an urgent need to bring down cotton prices to international levels as that would improve margins of cotton-dependant textile firms.

"Today, India’s cotton prices are 15 percent higher than international prices. At least procured cotton should be disposed off at international prices," D.K. Nair, secretary general, CITI said.

India had hiked the minimum support price for cotton by up to 40 percent for medium staple cotton in September last year.