He added that a committee has been set up to formulate a national fibre policy and it would submit its recommendations in three months.

Meanwhile, industry leaders welcomed the government's decision, saying the subsidy would 'greatly help' the textile sector.

'This amount of subsidy is indeed significant and would greatly help the Indian textile sector at a time when the industry is finding it difficult to procure credit for its working capital needs,' said Harsh Pati Singhania, president of the Federation of Indian Chambers of Commerce and Industry (FICCI).

Many textile companies have reported that banks were still reluctant to lend to textile companies,' he added.

The country's textile sector is facing one of its worst crises as business orders from the advanced economies like the US and Europe fell sharply due to the global slowdown.

According to the Apparel Export Promotion Council (AEPC), India's garment exports fell 15.4 percent in the first quarter this fiscal.