The previous National Democratic Alliance government had begun the process of addressing the distortions in the tax regime applicable to the sector to make composite mills more viable, but by bringing even the unorganised sector in central value added tax chain it opened a political can of worms.
It became an election issue in some parts of the country and the unorganised sector was promised by some parties that they would be exempted from CENVAT.
After the United Progressive Alliance government took over, it cut the knot by making CENVAT optional for composite mills and unorganised players in the textile sector.
This move consolidated the growth in the textile sector and companies unveiled huge expansion plans to tap the opportunity that would come up after the quota system in the world textile trade goes off.
According to the government, country's textile exports could double to $25 billion in next two years and touch $50 billion by 2010.
The organised players in the textile sector, whose competitiveness was eroded over the years because of additional taxes on them, will need huge doses of investment to make them viable again.
According to some experts, the textile industry requires Rs 90,000 crore (Rs 900 billion) of new capital in the next five years.