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Government to aid textile start-ups via equity fund model

NEW DELHI: In a move that aims to replicate the success of India's IT entrepreneurs, the government is planning to fund and provide workspace to start-ups in labour intensive sectors.

The idea is to give a boost to manufacturing and ensure steady supply of skilled workforce in sectors that have huge export potential, a senior government official told ET on condition of anonymity. The official said the start-ups will be funded through a dedicated equity fund on pure 
venture capital model. The project will be tested in the textile sector where space will be provided to entrepreneurs at textile parks while funds will be given through the state-supported Textile Equity Fund.

"The textile ministry is working with 
SIDBI to launch the first state-supported, dedicatedTextile Equity Fund in the next three months, which will ensure easy availability of equity for start-ups as well as expansion for smaller enterprises," the official said. "Going by the experience of the IT sector, the expectation is that after the initial success, markets will provide adequate financing for the equity needs of the textile sector."

If successful, the model will be replicated in leather and toys industries. A decision to this effect was taken at a recently held meeting of the Committee on Manufacturing, chaired by
Manmohan Singh.

Although apparel exports from India clocked double-digit growth in the current fiscal and production grew 45% in the first five months, Indian textile exports are facing tough competition from Bangladesh in the US and the EU markets.

"However, this would require textile ministry to tweak their guidelines for textile parks as well as finance the development of flatted factories in textile parks where workspaces would be made readily available to entrepreneurs on rent, hire purchase as well as sale," said the official, who was present at the meeting of the high-level committee. India imported toys worth over Rs 1,200 crore during 2012-13.

"Most of the toys come from other countries, mainly China. We can very well produce these in the country. So we are looking at a similar policy for toys and leather", said the official. An inter-ministerial group under the textiles secretary is working on a time-bound action plan to implement the decision. The other members of the group include representative of the Planning Commission and the Department of Expenditure and Financial Services.

The National Manufacturing Competitiveness Council along with Planning Commission member (industry) and the chief economic advisor will act as a steering group to facilitate the implementation of the action plan. The textile ministry will commence work on five pilot projects for development of flatted factories in existing textile parks this year. It will shortly finalise the quantum of equity fund as well as additional financing for setting up the flatted factories.

About 40 textile parks have already been set up in the country, while another 20 were announced last year to enhance the competitiveness of the sector. Textile contributes about 14% to industrial production, 4% to the 
GDP and 17% to the export earnings. The sector is the second-largest employment provider after agriculture.