Textile sector gets Rs 7,400 crore funds for technology upgradation

In a move that will help boost the prospects of Indian textile players in an increasingly competitive global export market, the government has on Tuesday increased the allocation for modernization of the textiles industry to Rs 15,404 crore from earlier sanction of Rs 8,000 crore to be disbursed within the current Five Year Plan ending March 2012.

Not only has it increased the allocation for the Technology Upgradation Fund Scheme (TUFS) but has also restructured the same to make it more effective. A wider gamut of players and particularly the smaller players will be able to get greater benefit and improve their scale of operations from the revised and restructured scheme according to the textile ministry. A decision to this effect was cleared by the Cabinet Committee on Economic Affairs (CCEA) on Tuesday.

As per the restructured scheme, out of the fresh allocation a total of Rs 1972 crore would be available for fresh sanctions while the remaining Rs 5,432 crore will be utilized for meeting the already made commitments. Following the meeting of the CCEA, textile ministry stated that the approval from Cabinet will enable immediate lifting of the pause button imposed on the scheme by it since June 29, 2010. The scheme was put on hold last year following lack of funds.

According to the textile players, one way through which the restructuring will improve the reach of the scheme is the fact that capital ceiling under the margin money has been raised and this would encourage the weaving sector to go in for more number of looms and thus would also boost large-scale investments as well. So far, most of the investments were into second-hand looms.

TUFS was launched in 2007-08 to help the industry upgrade to advanced technology in order to improve competitiveness against other exporting countries.  The scheme mainly provides for reimbursement of 5% interest charged by the financial institutions/banks for technology upgradation projects in conformity with the policy. In case of overseas loans, it gives the option of availing a cover for exchange rate erosion of up to 5% per annum instead of 5% interest support. As per the changes made in the scheme the government under the re-structured scheme, 10% capital sops would also be provided on brand new looms.

India can resort to capital control as and when needed: RBI

Capital controls were a legitimate response to a surge in volatile capital inflows and India’s central bank will resort to the same if and when the need arises, said D Subbarao, Governor of the Reserve Bank of India (RBI) on Tuesday, adding that global perception of capital controls as an economic tool had improved.

Subbarao said that there was a broad consensus among most central banks about making capital controls a legitimate component of the policy response to surges in capital flows. While delivering a speech in Colombo on the occasion of the 60th anniversary celebrations of Central Bank of Sri Lanka, the Governor said the multi-speed recovery around the world and the consequent differential exit from accommodative monetary policy have triggered speculative capital flows into emerging market economies (EMEs).

'The most high profile problem thrown up by capital flows, in excess of a country's absorptive capacity, is currency appreciation which erodes export competitiveness,' he said adding that ideally capital inflows to EMEs should be stable on a medium term basis to benefit the host country and also be roughly equal to the economy's absorptive capacity.

He noted that while multilateral institutions like the International Monetary Fund (IMF) used to see capital controls as a form of protectionism, the views of most economists even in the developed world has changed since the financial crisis of 2008. 'The crisis has changed the terms of that debate. It is now broadly accepted that there could be circumstances in which capital controls can be a legitimate component of the policy response to surges in capital flows,' Subbarao said.

India has so far not imposed any capital inflows, but some other countries including Brazil had resorted to such restrictions. Capital controls are generally in form of some Tobin Tax, named after James Tobin, who was first to propose that cross boarder capital movement should attract a small tax to discourage volatile flows. Since India runs a significant current account deficit (CAD) of around 2.5-3% of its gross domestic product (GDP), it has been following a wait and watch policy on inflows so far. 

While there was a surge in capital inflows by middle of the current financial year, off late, foreign funds have been on the sell mode due to concerns including a high inflation and potential slowdown. Recovery in advanced regions has also lead to slowdown in inflows into emerging economies in recent months. Subbarao stressed that there was a need for economists from both developing and rich world to develop consensus on how temporary surge in inflows or outflows should be handled so as to bring more stability in global financial system.

OMCs losses mount as government holds retail fuel prices

The publically controlled OMCs sell diesel and cooking fuels at prices that are generally lower than the cost. These are generally compensated by upstream companies and the government but such compensation is often not complete and OMCs have to absorb some loses. While the government has historically born 33% of the oil subsidy, the oil ministry has been asking the government to hike its share given the surge in under-recoveries.

The oil ministry has made it clear that upstream companies, which provide discounts on crude oil supplies to downstream companies as their share of under-recovery, will not bear more than 33% of the losses of retailers. This leaves the rest to be divided between the government and downstream companies. Since the OMCs does not have the financial muscle to absorb anything more than say 10-15% of the under-recovery, the government will have to hike its share to over 50% to ensure that financial health of fuel retailers is not impacted.

Just In: RBI raises repo, reverse repo rates by 25 bps

The Reserve Bank of India (RBI) on Thursday raised repo and reverse repo rates by 25 basis points despite some international uncertainties as domestic inflation scenario remains the biggest concern.
The new repo and reverse repo rates are 6.75% and 5.75% respectively. This was eighth increase in benchmark policy rates by the central bank in current financial year.