Textile subsidy scheme sags in new avatar

The allocation target set by the Union ministry of textiles under the Technology Upgradation Fund Scheme (Tufs) is unlikely to be achieved because of poor demand in new project investment.

Encouraged by the robust response in the previous Tufs programme, the ministry had allocated Rs 1,972 crore as subsidy under a restructured Tufs.

Terming the response lukewarm, A B Joshi, textile commissioner, said, “We have received proposals for Rs 110 crore of allocation for the project worth Rs 4,200 crore.”

Under Tufs, a manufacturer setting up a new unit gets a subsidy, to promote investment in this labour-intensive industry. it was first introduced in 1999 and got a very encourage response. the total subsidy released was Rs 11,200 crore, of which Rs 8,883 crore was issued in the past three years. Tufs is estimated to have catalysed investments of Rs 2,08,000 crore during its 11-year life.

The scheme was suspended by the ministry in June last year but restored in April this year, for the current financial year. As mentioned earlier, Rs 1,972 crore has been allocated for 2011-12.

However, many expansion projects have taken a back seat this year, due to the slowing economy and uncertainities in the US and euro zone. Garment makers have stayed away as increasing their capacity does not make sense in this scenario. The US and euro zone countries are the biggest markets for Indian textile export.

Also, the government in October decided to allow duty-free import from Bangladesh for 48 textile items. So, rather than expanding the garment business in India, apparel manufacturers are moving to Bangladesh. For, the cost of production there is much less. Indian businesses are using this concession to import goods from there for use in the country’s market.

The ministry says it has planned road shows in tier-II cities to create awareness about Tufs. The main reason for the dull response, Joshi believes, was the timidity of the garment sector, owing to uncertainty in the world’s major economies.

In the new scheme is that the loan repayment has been reduced to seven years from 10 years earlier. The moratorium period remains two years and the loan repayment period has been reduced to five years from seven years.

Earlier, only the garment and processing sector enjoyed the 10 per cent subsidy. The weaving sector in the new scheme has been granted 10 per cent capital subsidy for new shuttle-less looms, to get rid of second-hand ones. However, the spinning sector’s interest reimbursement has been reduced to four per cent from the earlier five per cent.

After the scheme ended in June last year, the government had appointed Crisil to study what it had achieved. Crisil said Tufs had facilitated an increase in productivity, cost and waste reduction, and improved quality across the value chain. However, the gains varied across segments, with the processing and powerloom sectors emerging as major areas of concern. To ensure optimum value addition across the chain, the scheme was reintroduced, to channelise investments towards hitherto low-focus areas.