Having dealt a body blow to the textiles industry over the past few decades by way of concessions to small-scale units like powerlooms, the government is now trying its best to repair the damage before trade quotas are abolished on January 1, 2005.
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Part of the funds required for this will come from the government.
As for the bias against larger units, the Budget for 2003-04 did a lot to rectify this.
According to estimates by the Steering Group on Investment and Growth in Textiles, headed by Planning Commission Member N K Singh, the industry needs fresh investments of around Rs 98,000 crore (Rs 980 billion) in order to become competitive.
The group has recommended various options and a decision is expected soon, but broadly, it has recommended that existing loans be restructured in a way that interest rates are around 13-14 per cent, against 17-18 per cent now.
Financial institutions, which have around Rs 20,000 crore (Rs 200 billion) exposure to the textiles industry, will have to bear the burden of any interest rate reduction.
The Textile Industry Reconstruction Fund will provide a subsidy of around 4-5 percentage points worth of interest payments, effectively lowering interest rates to 8-9 per cent for borrowers that qualify for restructuring.
According to Chintan Parikh, chairman of the Indian Cotton Mills Federation, which hired Deloitte Haskins & Sells to prepare a restructuring plan, the government needs to spend just around Rs 400-500 crore (Rs 4-5 billion) a year to facilitate restructuring of around Rs 10,000 crore (Rs 100 billion) worth of assets.
Says Parikh: "Today, around 25 per cent of a unit's turnover is spent as capital charge, or towards servicing loans. If the interest rates are lowered and their tenures are extended through a restructuring fund, this ratio can be brought down, and overall costs of production can come down from around Rs 100 to Rs 92-95.
"That's a huge saving for the industry and will prevent loans from turning into non-performing assets. It's a win-win for everyone."
However, once the scheme becomes operational, loans will be available only to units having at least Rs 2 crore (Rs 20 million) in institutional debt and a positive earnings before interest, depreciation and tax amortisation during three of the preceding five years.
In addition, the units should have debt servicing ratios of at least 1.33 of the restructured loans.
In the Textile Industry Reconstruction Fund, the government provides a 5 percentage point subsidy on loans taken from designated financial institutions that have co-opted around 148 leading banks and co-operatives.
So far, modernisation has been quite slow, especially in the informal sector -- just 0.03 per cent of the 370,000 powerloom units have availed of loans under this fund.