DHAKA (Reuters) - Textile manufacturers in Bangladesh said they might be forced close their factories unless the government acts to provide more cash incentives and restrictions on imported yarn and fabrics from India.

"Without these measures we can not survive," said Jahangir Alamin, president of Bangladesh Textile Mills Association.

He told Reuters in an interview on Sunday that the manufacturing firms also can not utilize their capacity due to shortages of gas and electricity.

"We will have no alternative but to shut our business, after the Muslim Eid al-Fitr festival at the start of September, as half of the (manufacturing) firms have already become inoperative," said Jahangir Alamin.

He said that if the government did not raise an cash export incentive for textile makers to 15 percent from 5 percent now, "it would be very difficult for them to survive and remain competitive in the international market.

"While the cash incentive should remain in force until 2015, the government should also take initiative to encourage use of local fabric and yarn," Alamin added.

The government is considering these issues after meeting on Sunday, but no specific decisions were announced.

There are more than 1,300 primary textile manufacturing factories in Bangladesh's textile sector with a total investment of more than $4.0 billion, which help the country to save huge foreign exchange.

"Now we are able to supply up to 80 percent and 40 percent of fabrics for the export-oriented knit and woven industries respectively," Alamin said

Readymade garments are the principal export earner for Bangladesh, and also the biggest employer, after agriculture, in the country.

The textile mills could not use more than 35 percent of their production capacity due to a lack of electricity and gas supplies, Alamin said.

He added that business conditions deteriorated further due to relaxation of rules of origin by the European Union earlier in the year.

Bangladesh at present suffers daily shortages of up to 2,000 megawatts of electricity and 500 million cubic feet of gas due to demand that is growing much faster than output.

"Besides, we had to buy cotton at exorbitant prices from the international market during the March-April this year, but now the market rate of cotton has dropped to less than half of its procurement rate."

Purchasing cotton at high price caused the millers to incur substantial losses, to the extent that many factories became unable to continue production.

Alamin said that cotton-exporting India frequently changed its trade policies according to the state of demand but Bangladesh did not take any measure as such, that pushed its textile sector to an uneven competition.

"India has been giving cash support at the rate of over 25 percent in different stages to its textile sector," he said.

"Recently, India has declared 7.67 percent cash incentive on export of knit and woven fabrics and yarn, effective from April 1, 2011. The new measure has come as another severe blow for us," Alamin added.

The BTMA president said that due to an increasing trend of importing yarn and woven and knit fabrics at rates dictated by ups and downs in international cotton market, the local millers in Bangladesh are suffering.

"Local garment factory owners have been importing knit and woven fabrics from India at prices lower than our production cost, but the government did not take any initiative to check the import despite repeated requests," Alamin said.

"As a result, Bangladeshi millers have a stockpile of 2.5 million tons of unsold yarn, worth $121 million."

Bangladesh imported 278 million kgs of yarn and fabric in the first half of 2011, which is 25 percent higher than in the same period of last year, according to government and BTMA statistics.

(Reporting by Serajul Islam Quadir; Editing by Anis Ahmed and Hans-Juergen Peters)