In Bid To Woo Investment, Gujarat Announces New Textile Policy

The incentives on offer include a capital subsidy of between 10-35 per cent, an interest subsidy of 5-7 per cent, a power tariff subsidy and payroll assistance to create new employment in mills.  

The much-awaited move comes in the wake of several companies from Gujarat, including major players like Arvind and Welspun, announcing plans to invest in southern India.

The Secretariat was the first to break the news of the policy which was then being drafted.

Sops Galore In New Policy

The policy, announced Tuesday by the state’s Chief Minister Bhupendrabhai Patel, included a capital subsidy up to a maximum of Rs 100 crore and varying according to where the unit is located. The subsidy will last for up to a maximum of eight years.

While small units cost between Rs 5-20 lakh to set up, larger units can cost anything between Rs 50 lakh to several thousand crores of rupees.

A much sought-after power tariff subsidy of Rs 1 per unit for electricity supplied by power distribution firms or through renewable power sources will be given for the first five years.

The state government will also pay an interest subsidy, ranging of 5-7 per cent of eligible fixed capital investment for a period of 5-8 years.

The Gujarat government also announced payroll assistance of Rs 3,000-5,000 per month for every woman worker employed, and Rs 2,000-3,000 for male workers. The differential assistance is aimed at increasing women’s participation in the textile labour force.  

Self-help groups engaged in textiles will also be eligible for training assistance of Rs 5,000 per member for three months, and payroll assistance of Rs 5,000 per month per member.

Fiscal Incentives For Labour-Intensive Units

Textile units that employ at least 4,000 workers, of whom a thousand are women, will be labelled as ‘labour-intensive’, making them eligible for some extra benefits, officials said.

The capital subsidy will range from 25-35 per cent instead of 10-35 per cent and the ceiling will be extended to Rs 150 crore.

Similarly, a higher interest subsidy rate of 7 per cent can be availed by textile mills that fall in this category. Payroll assistance will also be higher at Rs 2,000-4,000 for every male worker hired.

No Policy Since January 2024 

Gujarat, which has traditionally been at the forefront of India’s textile industry, hasn't had a textile policy since 2023. The last textile policy that was announced in 2019 ended in December 2023. Ahead of the policy lapsing, major textile players had pleaded with the state government to unveil a new policy, well before the 2024 Lok Sabha polls and the Model Code came into effect. 

In recent years, analysts said there has been a decline in investment in Gujarat's textile sector, along with projects moving out of the state to locations outside the state and the country, including to Maharashtra’s Navapur.

For instance, Arvind Mills came up with plans for a plant in Jharkhand, favouring the eastern state over Gujarat, where much of its investment is located. 

At Rs 10.50 per unit, Gujarat perhaps has one of the highest power tariffs in the country, analysts said. Higher power tariffs with fewer subsidies meant higher costs, which in turn meant industries from the state faced tougher competition. Bigger investors favoured China and Vietnam, where many have already invested crores in state-of-the-art textile mills. 

How Competitive Is Gujarat's New Textile Policy?

The new textile policy of Gujarat will extend a capital subsidy of 10-35 per cent capital subsidy for 8 years, particularly for the labour-intensive units. In comparison, Maharashtra gives a higher capital subsidy but for a smaller time window. It provides a subsidy in the range of 25-55 per cent for just 2 years.

Tamil Nadu government provides the most attractive package - 10-40 per cent capital subsidy for 10-15 years.

Tamil Nadu also provides a 5 per cent rebate in interest rate payments for ultra mega projects up to the limit of Rs 4 crore annually for a period of 6 years. In contrast, the new Gujarat policy provides a  sop of 5-7 per cent interest rate subsidy on eligible fixed capital investment for 5-8 years.

However, the big differential is Gujarat’s announcement of monthly payroll assistance of Rs 3,000-5,000 for every woman worker and Rs 2,000-4,000 for every man working in the textile sector, for 10 years. While Maharashtra does not have any such provision, Tamil Nadu policy provides Rs 4,000-6,000 training subsidy but only for 6 months.