The Indian textile industry is facing a severe credit crunch, with small and medium-sized exporters particularly hard hit. In response, the government is exploring various options to address the issue.
According to reports, the commerce department is considering establishing a credit guarantee fund for export finance, similar to the post-Covid loan package. This would alleviate the burden of collateral requirements for businesses.
The rising cost of credit, coupled with increased freight rates due to geopolitical tensions, has further exacerbated the challenges faced by textile exporters. Despite a 15% increase in exports in rupee terms, outstanding export credit has declined, indicating a reluctance among lenders to provide financing.
The government is also examining the role of the Export Credit Guarantee Corporation (ECGC), which currently provides coverage of $80-90 billion. There is a growing consensus that this coverage is insufficient to meet the needs of the industry, and there may be a need to review its monopoly status.
Additionally, factoring services, which can help businesses meet their cash requirements by selling their account receivables, have not been fully utilised. The government is exploring ways to promote the adoption of factoring.
As the government continues to work on solutions to these challenges, it is clear that the textile industry requires a comprehensive approach to address the credit crunch and ensure its long-term sustainability.
