Textile and Solar! Industry expectations from Union Budget-2015

India Infoline News Service | Mumbai | February 24, 2015 10:10 IST

Solar energy should be made a priority sector and excluded from conventional power sector with a different sectoral cap, such that banks are encouraged to lend to the sector, says Welspun Group

Interest Rates for Textile Exporters
 
Textile contributes 12% of India’s total forex earnings and has registered exciting export growth in recent years. Textile has the potential to be prime source of foreign exchange. To fully exploit this potential, loans for Textile sector should be given at interest rate of 7%. This step will encourage the investment in the sector.
 
Explanation: Textile Industry is one of the major contributors for India’s export basket. It contributes 12% of India’s total foreign exchange receipts. Country is self-sufficient in Textiles and is not dependent on imports. It was projected by then Planning Commission that Textile exports will grow by 12% in coming years. In light of this, we believe there should be encouragement for Textile exports. We expect interest rates for Textile exporters should be capped at 7%. This will significantly reduce the Interest payment burden of Textile exporter and attract more and more investments.
 
Continuation of Interest Subvention
 
Cost of Credit is major source of concern for Indian Textile Industry. Interest subvention is a support for India’s Textile exports and it should be continued for all textile product categories. Policy also needs to be clarified which will give a clear visibility of continuity of Interest subvention for next 3 to 5 years.
 
Explanation: Textiles is identified as a priority sector for encouraging investments. Cost of credit is a major concern for Indian Textile Industry. To ease this burden, the Government had launched “Interest Subvention Scheme” which was discontinued in 2014. This scheme needs to be continued for next 3 to 5 years.
 
Scheme for Mega Textile Park
 
India’s share in world textile market is mere 4% as compared 35% of that of China. If India desires to enhance its global share, it should focus on Scale of Operations. Scale can be achieved through investments in Mega Textile Park. A new scheme of incentives for setting up Mega Textile Park can be a game changer for future of Textile Industry.
 
Explanation: World Textile Industry size US $ 705 Bn FY 2012-13 and India’s share in world textile market is mere 4% as compared to China’s 35%. The Industry needs to focus on achieving larger share in global markets. To achieve this, Textile industry needs investments in Large Scale Industries (LSI) and Mega Projects.
 
Simplify and speed up TUFs refund process
 
The Textile industry faces difficulties in getting reimbursement. Procedure could be simplified, banks should pay up the industry claims and in turn claim refund from the Government.
 
Explanation: Perennial complexities in getting TUF refunds make the process time taking. Exporters are required to file the claims through banks to Textile Commissioner’s Office (TxC) and in turn will be submitted to Ministry of Textiles. On availability of required funds from Ministry of Finance, Ministry of Textiles will approve claims and send it to Pay and Accounts office, who will give credit to banks. Finally banks distribute funds to respective exporters. This entire process takes around 5 to 6 months. Exporters lose working capital for this period.
 
Encourage Skill Development in Textiles
 
Textile Industry is the second largest employment generator after Agriculture. Skill development has been identified as one of thrust areas by the Government of India. We propose that Textile Ministry should devise a policy for developing multiskilling institutes through Public Private Partnership (PPP). Current scheme for skill development devised by Textile Ministry does not give reimbursement of expenditure on Infrastructure for training institutes, which should be given in the future. Training Syllabus should be made common across the country which will make beneficiary employable across the country.
 
Identify solar energy generation as a priority sector and provide a separate sectoral limit for lending:
 
Explanation: Solar energy should be made a priority sector and excluded from conventional power sector with a different sectoral cap, such that banks are encouraged to lend to the sector. Also group exposure limits need to be removed. RBI needs to relax the provisioning requirement of banks for lending to Solar Sector as it directly impact loan cost.

Solar Power faces financing challenges from scheduled commercial banks. The main reason for banks’ lack of interest is that solar comes under the aegis of the ‘power sector’ and as such the power sector lending caps have already been reached and in some cases, been exceeded. We believe Group exposure limits are constraining growth of the sector.
 
Solar projects need cheaper funding sources:
 
Explanation: Government must Raise ECB limits, Tax-free RE bonds, Special Infrastructure RE Bonds, International long-term loans from multilaterals, bilateral and explore and encourage other international donor organizations. Refinancing of domestic debt availed for solar sector by ECB loans should have automatic approval. Lending guidelines of PFC, REC, IFCI, IREDA related to solar - needs relaxation in RoI (< 10.5%), DSRA requirement, Longer Loan Tenure, Sectoral limit etc.
 
Currently, solar projects have high dependency on domestic bank financing.
 
Domestic projects have high cost of financing due to dependency on local funds – increases risk and poses limitation on project viability.
 
Currently institutions like PFC, REC, IFCI and IREDA (promoted by Central Government and MNRE) are lending at 12.50% to 13.50% - making many projects unviable
 
Braja Mishra, MD, Welspun Corp
 

 
Govt should initiate anti-dumping procedure to protect local pipe manufacturers
 
Protection to Local Pipe Manufacturers
 
Indian Pipe Manufacturers are losing business to Chinese counterparts as Chinese Govt. is giving 17% rebate on exports. As a result Chinese manufacturers are dumping products in Indian markets at the low cost causing a long term injury to Indian pipe manufacturing industry. The GOI should initiate anti-dumping procedure to protect local pipe manufacturers.
 
Rajesh Mandavewala, MD, Welspun Group
  
Jumpstart Infra Project for Petroleum and Natural Gas National Grid
 
Ministry of Petroleum and Natural Gas initiated the project of 15000 km pipeline of Petroleum & Natural Gas and then Government of India during budget 2014 had worked out to launch the project. This project needs to be expedited which will build natural gas infrastructure in the country and will revive the Indian pipe manufacturing industry.
 
Eligibility of borrowing from ECA (Export Credit Agency) Structure
 
The Borrowing from Export Credit Agency (ECA) Structure should be made eligible for TUF benefit for funding Projects in Textile Sector
 
Explanation: Existing guidelines permit Eligible finance for the purpose of claiming TUFs is Rupee Term Loan & ECB (External Commercial Borrowing)
ECB availed from Overseas Branch of Indian Bank / Foreign Bank having Indian Branch ( Being Co-opted by PLI ) is eligible for TUFs
Project funding through ECA (Export Credit Agency) structure in foreign currency are not covered in the existing guidelines. These type of funding are under Export funding programme of various countries viz. Germany, China, Austria, Italy etc.
We request for inclusion of funding through ECA structure to be eligible for TUFs and also devise system for claiming TUFs subsidy under ECA structure since these ECA funding agencies would not have any branch or office in India.
 
Inclusion of BSE/NSE listed Bonds / Debenture as sources of funds
 
TUF guidelines should be amended to include source of funds like Mutual Fund, Provident Fund and Gratuity Fund etc.
 
Explanation: Other than Rupee term loan and Foreign currency loan, the project funding can also be through issuance of Bonds/Debenture which are listed on the recognized stock exchange.
The Investor of these Bonds/Debenture could be Mutual Fund / Insurance companies/ Corporate/Provident fund or Gratuity Funds etc.
These Investor are not listed as permissible lending agencies as per the existing guidelines. Since Bonds/Debentures are listed, these Investor may change during the tenure of Bonds Debentures
We request you to devise system for permitting Bonds / Debenture as a funding option for the project and also devise system for claiming TUFs subsidy for Bonds /Debentures.
 
Ease of funding for the infrastructure sector
 
In September 2013, RBI allowed a special swap window for swapping FCNRB dollar deposits with a minimum tenor of three years at a fixed rate of 3.5% per annum. Such a window should be opened/allowed for infra sector funding so that the cheaper dollar borrowing becomes possible.
 
We request for measures to lower cost of infrastructure funding.
 
MAT (Minimum Alternate Tax) rate should be reduced substantially
 
Minimum Alternate Tax (MAT) Rate should be reduced to 10-12% to boost investments.
 
Explanation: While the Government may be expected to provide concessions and incentives for projects falling under the philosophy of ‘Make-in-India’, the high rate of MAT would substantially neutralize any tax benefits accruing from these incentives. Similarly the benefit of investment linked allowance under the Income tax Act gets diluted if the Companies fall under the MAT Regime. Hence the MAT rate should be reduced substantially to say 10%-12%, to boost investments.
 
Make long-term foreign exchange hedging available at an affordable cost for RE projects:
 
Explanation: Government (possibly through EXIM Bank) should work with institutions such as the Currency Exchange Fund (TCX) to identify how long-dated FX swaps could be deployed for RE in India, at a lower cost to developers. Hedging norms for solar sector may be relaxed. e.g. Structured options for hedging not available for small solar projects considering listing requirements and conditions of minimum Rs 200Cr net worth criteria.

While markets exist to hedge medium-term FX risk, rates are prohibitively expensive. Exposure to foreign exchange fluctuations can act as a disincentive for foreign investment in RE power projects. Government could provide a currency swap at a lower cost. Current  Forex exposure is through short/ medium term instruments such as buyer’s credit or similar.
 
BK Goenka, Chairman, Welspun Group

 

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