The upward revision of Repo and Reverse Repo rates by Reserve Bank of India in its mid-quarter monetary policy review on Thursday has plunged the rate-sensitive textiles sector into a state of predicament.
The RBI had increased the Repo rate (rate at which banks borrow from RBI ) under the Liquidity Adjustment Facility (LAF) by 25 basis points from 5.75 per cent to six per cent and the Reverse Repo rate (rate at which RBI borrows from banks) under LAF by 50 basis points from 4.5 per cent to five per cent, both with immediate effect.
Though RBI termed this revision as a measure to contain inflation and anchor inflationary expectations without disrupting the growth, the textile industry by and large thinks otherwise. The (textile) sector already facing the brunt of ‘ever-rising' cotton prices would now have to combat with an increase in the institutional lending rates following the hike in the short-term rates (i.e. Repo and reverse Repo).
It was because that any hike in Repo and Reverse Repo rates would lead to a rise in cost of funds for the banks and eventually make loans more expensive.
“With the knitwear units here paying about 70 per cent more to fetch a candy of Shakar-6 cotton variety vis-a-vis the rate prevailed in the corresponding September last year, any further increase in the lending rates at this juncture could prove ‘costly' for the textile entrepreneurs,” Institute of Chartered Accountants of India senior member S. Dhananjayan told The Hindu.
Moreover, the textile sector was also in the process of improving its machinery capacity to come out with better value-added garments to remain competitive in the world apparel market.
Tirupur Exporters Association president A. Sakthivel, in an appeal to the RBI, had come out with a suggestion to provide export credit to the knitwear exporters at the base rate itself.