 "Ministry for privately managed govt seeded equity fund for etxtile, apparel sector")
According to the recommendation, private money from retail investors could be raised for such dedicated equity funds by providing income tax exemption.
Further, for stimulating investments in the sector, it has also recommended that investment allowance of 15% for next 10 years should be provided across entire textile and apparel manufacturing value chain, including garment accessories and textile machinery manufacturing.
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The fund, as per the recommendation will provide the much needed money for the growth and expansion of smaller units in the industry where venture capital funding for startups is not available.
Institutional funding is also not easily available to this sector as being highly competitive and operating on low margins, the players could not afford very high rate of returns.
Thus it has been further suggested that the equity should be provided without seeking management control and with a reasonable contractual agreement regarding valuation and exit in line with international practices.
According to officials, countries like China and Bangladesh have developed large production set?ups whereas Indian sector is dominated by smaller units which lack economies of scale and have a low level of technology.
Due to lack of large manufacturing capacities Indian manufacturers are unable to cater to large orders and become globally competitive.
Therefore in order to achieve large scale technology up gradation in powerloom and Knitting sector, scheme for Hire?Purchase is necessary. Under this scheme, as per the proposal, cluster specific Special Purpose Vehicles (SPVs) should be promoted under public private partnership mode with the State Governments.
SPVs will purchase latest technology machines and lease them to weavers or knitters. Officials explained that since the SPV engage in bulk purchases should be able to get reasonable discounts from the machine manufacturers.
The SPVs for this purpose should be not?for?profit institutions which may get seed money from the Ministry of Textiles and could also choose to operate in the PPP mode.
Being promoted by the Ministry of Textile and the State Government, the SPVs should be able to raise debt at attractive rates for their operations. If necessary their debt could be guaranteed jointly by the Central and State Governments in the initial phase of
Operations till the track record would warrant the withdrawal the government guarantees. To the extent feasible, new work?sheds may also be created for which land would need to be arranged for the SPVs by the State Government.
The real income of the weaver after paying for the EMI to the SPV should increase adequately for the Scheme to be a real success. Initially, four to five pilot projects of this nature should be taken up and accordingly the interest subsidy subvention would need to be calibrated.
After the learning of few pilot projects, a robust delivery mechanism should be in place over the next two years. Thereafter, the programme should be scaled up to ensure complete replacement of old looms with modern shuttle less looms over the next five to seven years.