Spinning mills want interest subvention scheme for yarns and clothes exports, since interest cost is a major roadblock towards profitability. Most small and medium sized mills are expected to make losses at the net level in the fiscal 2015-16. The downward trend is affecting negatively with stocks piling up due to a fall in demand which is leading to a financial crisis.

Another problem mills are facing is that existing orders are being re-negotiated due to the yuan’s devaluation. This has affected the farm sector with payment delays on cotton purchased by mills. The interest subvention is expected to give a thrust to yarn and clothes exports due to competitive pricing and the gap created by this would be filled up through supplies from the domestic sector.

Interest subvention is a subsidy offered on interest rates. It’s offered on several lending schemes by the government to promote a particular industry. With the subsidy in hand, the loan borrower does not have to pay total interest on the loan amount. Some part of it is borne by the government.

With the interest subvention in hand, the EMI of the borrower comes down by percentage of interest subvention borne by the government.