All good intentions of giving 25 per cent cash subsidy on textile exports are likely to be subverted by new guidelines said to be inconsistent with textile-manufacturing processes.

Textile entrepreneurs said the new decision would raise cost of fabric production and frustrate entrepreneurship as well as increase government expenditure for same quantity of fabric exports.

I he subsidy was introduced in 1994 for the local textile fabric producers to encourage readymade garment exporters to use local fabrics for value addition to (he export apparels mostly made with imported foreign fabrics.

But Bangladesh Bank issued a circular on March 5 amending the previous guidelines that allowed each of the production chain -spinning, weaving and RMG manufacturing - for the cash incentive.

The amendments aimed at preventing irregularities like submitting fake documents to avail the facilities, a senior official of the central bank told UNB.

However, according to the cir-

culai, the changes were made lor optimum utilisation of the state support for value addition to the products of (he (op export-earning sector.

Fabric manufacturers said they have to make a stock of fabrics of common demand by RMG manufacturers to meet the lead-time, usually very short.

To meet the lead-time demand, they used to produce fabrics of common demand in ad vance procuring yarn through cash purchase, using pay orders, demand draft, TT and other bankable instruments.

Liter, they claimed subsidy on the basis of the amounts paid for purchasing yarn through the instruments.

Now it would be very difficult to meet the timeframe using the payment instrument, back-to back LC, as production requires yarn procurement, fabric procurement and dyeing, printing and finishing, they pointed out.

As per the new' guidelines yarn will have to be procured through back-to-back LC.

"A section of the textile entrepreneurs manipulated the good intentions of providing cash sub-

sidy to make (heir lot through producing fake instruments,'' said an official quoting .in investigation findings.

However, he said, genuine en treprenems are unlikely to lace trouble in the new guidelines

I nltepienenrs said small spin-nets .ire hatdly Interested in back to back L( because most ol them aie bank defaulters. II they use this instrument, their banks deduct some amounts of the l( value to realize the outstanding loans.

Director ol l.ipika Fabrics Ltd Engr F Hassan Murad said the spinners demand high price for yarn, additional I k 3-4 per pound, il weaver. oiler back-to-back letter of credit.

One spinner offered him two separate quotations for supplying yarn - one I k 52 per pound for cash purchase and the other I k 56 per pound for LC. The weavers will also have to spend more I k 1.50 per pound of yarn lor opening LC.

“Thus, yarn procurement through LC would raise cost of fabrics to force RMG entrepreneurs to make procurement from outside the country' frustrating the fabric entrepreneurs," he said.

The increased cost can be

managed if pay orders, demand drafts and other negotiable bank instruments are allowed in the cash subsidy guidelines for pro-curing yarn.

However, Murad said mandatory back-to-back LC procedure would not affect those who have all the three production subsectors - spinning, weaving and RMG. But there are very few entrepreneurs with the full cycle.

He said only 2-3 weaving mills exported fabrics in 1993-94 which now rose to around 132 to meet about 18 per cent of the required fabrics by the export-oriented RMG industry.

Lliis was possible due to the cash subsidy given since 1994.

Showing another equation, Murad said the new system would increase government expenditure for same quantities of fabric exports while the RMG exporters would face trouble in opening back-to-back LC.

The new guidelines allow RMG export for the subsidy which will be call ul.tied on FOB-

Readymade garment exporters open back-to-back LG to around 60 per cent of (lie total I ( value for fabric import and other 15 per vent for other accessories.