Government is considering allowing authorised dealers to issue guarantees to overseas funds which could be used even for purchase of indigenous machinery for the textiles sector.

Official sources said the Finance Ministry was considering a proposal to amend the Foreign Exchange Management Act to facilitate this as a part of an incentive package for the textiles industry in the forthcoming budget.

The suggestion, which forms part of the recommendations of the N K Singh Committee on Textiles, is being considered along with another suggestion of the panel to create a Textiles Industry Reconstruction Fund with an initial corpus of between Rs 3000 crore and Rs 4000 crore (Rs 30 billion and Rs 40 billion).

Sources said the objective of the fund would be financial restructuring of viable and potentially viable textile units which would be identified on the basis of a strict eligibility criteria.

Amendment of Fema is being considered in the light of a comfortable foreign exchange position, sources said, adding, "Fema could be amended to permit authorised dealers to issue foreign loan guarantees favouring overseas lenders even if such overseas funds are used for purchase of indigenous machineries by the domestic textile sector for implementation of projects under the Technology Upgradation Fund."

With regard to the fund, sources said Government, financial institutions, participating industry and international lending agencies such as the Asian Development Bank and the World Bank could contribute to the creation of the fund.