Indian garment companies may get an interest subvention of 3.5 per cent on working capital loans. Borrowing working capital at high interest rates keeps product prices up, resulting in lowering India’s competitiveness in the world market. The high cost of finance has been a major barrier for the growth of the textile sector. Interest subvention will make India’s products competitive vis-à-vis products of other countries such as Bangladesh and Vietnam where textile players can avail of capital at much lower interest rates than those in India.

It’s estimated that the average interest rate on working capital is between 10.5 and11 per cent. When the Technology Upgradation Fund Scheme was introduced in the early ’90s, the average interest rate on working capital was offered at three per cent, which brought lots of investment into the textile sector. But now that the interest rate has surged to around 11 per cent, debt servicing has got difficult.

The textile sector contributes nearly seven per cent to India’s gross domestic product, and 13 per cent to merchandised exports. Only about $40 billion of textiles a year have been supplied by India to the global market over the past several years. In fact, this year, world textile imports are expected to decline mostly because of the global economic slowdown.