The Indian textile industry is facing a significant hurdle in the form of high interest rates, which is hindering the growth of exports, according to a recent survey conducted by the Federation of Indian Export Organisations (FIEO).
A majority of exporters, 75%, reported borrowing at interest rates exceeding 12%, often requiring substantial collateral. This high cost of borrowing is a major concern, particularly in comparison to other regional economies like China, Vietnam, Malaysia, and Thailand, where interest rates are significantly lower.
Export Outlook Bleak
The survey revealed a pessimistic outlook for exports, with 40% of respondents anticipating a decline in the current fiscal year. Only 22% foresee a growth of up to 5%. While India’s exports grew by a modest 1% to $213 billion in the first half of the fiscal year, the challenging global environment and rising costs continue to weigh on the sector.
Key Challenges:
- High Interest Rates: The high-interest rate regime, coupled with the need for collateral, is a significant barrier for exporters, especially small and medium-sized enterprises.
- Soaring Freight Costs: The ongoing geopolitical tensions in the Persian Gulf have led to a surge in freight rates and limited availability of shipping lines. 82% of respondents reported being adversely impacted by these rising costs.
- Logistics Bottlenecks: Inefficient logistics infrastructure and processes are further hindering the competitiveness of Indian textile exports.
Government Intervention Needed
While the government has taken steps to address freight-related concerns, there is an urgent need to tackle the issue of high interest rates. The finance ministry and the Reserve Bank of India (RBI) have been urged to take measures to reduce the cost of borrowing for exporters.
The commerce department is exploring options to ease credit flow, such as leveraging the Export Credit Guarantee Corporation (ECGC) and other guarantee mechanisms. Additionally, the department is examining ways to improve logistics efficiency and reduce costs.
The textile industry, a crucial sector for India’s economy, requires immediate support to overcome these challenges and maintain its competitiveness in the global market.
