The finance ministry has agreed on a one-year moratorium on repayment of term loans taken by textile units for technology upgrade. The move will benefit domestic textile manufacturers, which are facing falling profitability due to slowing demand for their products.

“The department of financial services and finance secretary (Arun Ramanathan) have agreed to loosen the criteria (for repayment of loan). They have agreed on at least a one-year moratorium,” textiles secretary Rita Menon said at a function here. However, the moratorium would be provided on case-to-case basis.

Country’s exports fell 13% during February 2009, the fifth consecutive month of falling overseas sales, and the textiles is one of the sectors that have been most affected by slump in demand across the world. Exports are likely to fall short of the targeted $200 billion for the fiscal by more than $25 billion.

“Textiles industry is losing business from the US and Europe to Vietnam, Cambodia and Bangladesh, which enjoy stronger government support and are importing cheap cotton from India,” Northern India Textile Mills’ Association president Sunil Jain said.

To bear the crisis, the industry had submitted a charter of demand to the government, including a two-year suspension on loan repayment. “We had asked for a two-year moratorium, but even one-year period would benefit many firms. It will also reduce the possibility of increase in non-performing assets of banks,” Confederation of Indian Textiles Industries secretary general D K Nair said.

About Rs 1 trillion have been invested in Technology Upgradation Fund Scheme (TUFS), under which the government gives financial assistance to the industry to improve the technology. Of this, Rs 40,000 crore to Rs 45,000 crore is the loan component.

“Banks are already giving moratorium depending on our need. A directive from the government would enable more firms to get it,” Nair said.

The government is also considering lowering the margin on loan for raw cotton to 10% from the present 25% and increase the loan period to 180 days, Menon said, adding that the finance secretary has indicated that the industry might get loans at lower rate of interest, subject to Reserve Bank of India guidelines.

On the industry’s demand for scrapping 5% duty incentive being given on export of cotton, Menon said, “The issue, whether to continue it or not is being discussed at various levels.”

The textile industry, which employs over 35 million people, has laid off over seven lakh workers in the last six months and another five lakh may be rendered unemployed in the coming months, Jain said.

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