The Technology Upgradation Fund Scheme (TUFs), which was discontinued earlier on June 2010, has been revised, restructured, and restarted. How much does it really benefit the textile sector?

TUF scheme was initially launched on 1999 for a 5 year period, and was extended by the Ministry of Textiles for the 11th Five Year Plan (2007-2011). Certain identified sectors of the textile industry were eligible for concessional loans regarding technology up-gradation requirements. Technology levels are benchmarked in specific terms for each sector of the industry.

Later in June 2010, the Government asked banks to suspend new sanctions under the scheme. In the textile industry, segments such as weaving, spinning, pressing, and garments were getting major benefits under the scheme. Declaration of the Government about the withdrawal sent shock waves throughout the industry. It was a time when the textile sector was gearing up to meet global standards and competition, armed with modernization, and technological advancements. Textile industry was, therefore, demanding the Government to continue with the scheme; as freezing the monetary flow abruptly would create adverse results in their investment and modernization plans.

The TUF scheme was quite successful, and was most welcomed by the industry players. During its 11 year operational period, TUF scheme has catalyzed investment of ₹2.08 lakh crore. A study on the TUF allocations during the previous year reveals that productivity has increased; quality has improved across the value chain, and resulted in minimizing wastes.

Now, the Union textile ministry has revised the scheme with new features. It was declared on 28th April and will be kept open till 31st March 2012. Overall fund allocations are capped at ₹1,972 crore. The main focus of TUF would be on the textile and jute sector. Sector-wise allocations and the period of the loan are shorter, while interest reimbursement for the spinning mills is kept lower.

The major objective of the TUF scheme would be to address fragmentation issues and enhance forward integration by giving a 5% interest reimbursement for spinning units with matching capacity in weaving/knitting/processing and garmenting. The scheme aims to promote more investments in low investment sectors like processing. It has reduced the repayment period from 10 to 7 years. The weaving sector is promoted by a higher capital subsidy for new shuttleless looms.

Southern India Mills Association (SIMA) Chairman, Mr. J. Thulasidharan says, "The 4 per cent interest subsidy for standalone projects and 5 per cent interest subsidy for spinning projects with matching capacity in weaving, knitting, processing/garmenting is a welcome move. The 10 per cent capital subsidy for new shuttle less looms apart from the 5 per cent interest subsidy would attract large-scale investments in the weaving sector." (Source: simamills.com). Weaving sector is given a 10% subsidy for shuttleless looms. This is welcomed among the industry people, as in the earlier schemes, only garment and processing segments were enjoying this benefit. Reimbursement of interest for the spinning sector has also been reduced from 5 to 4%. This is expected to motivate more participation from small industry units.

 

As it happens with every policy declarations, arguments happen both in favor of, and against the scheme. Critics feel that a major drawback of this scheme is that the repayment period of loans have been reduced from 10 to 7 years. The moratorium period is kept two years, same like the previous years scheme, but the ensuing repayment is reduced from 8 to 5 years. Industry players also feel that the section wise cap such as; 26% on spinning, 13% on weaving etc should be removed, as they might hinder the industry from getting investments.


Indian textile industry has an overwhelming presence in the country's economic improvement. With TUF scheme many entrepreneurs saw options for cheap availability of finance. What should be kept in mind is the market variations, and cotton purchasing. Revival of the global economy from the financial crisis, alternatives for crippling power cuts and an improvement in the yarn and cotton prices will bring about a positive change in the performance of the industry.


References:

 

  1. smetimes.tradeindia.com
  2. simamills.com
  3. business-standard.com