Textile subsidy scheme weaves dull streak in new avatar

With the economy slowing and the garment business still looking for stability, the subsidy scheme for technology upgradation in the textile sector has received lukewarm response in its new avatar. It was in April last year that the Technology Upgradation Fund Scheme (Tufs) was relaunched, after being discontinued for a while despite its huge success over a decade preceding it. The new scheme will now remain open till the end of the current financial year on next March 31.

The amount allocated for Tufs in 2011-12 was Rs 1,972 crore. Of this, subsidy to be given totals only Rs 200 crore. That, clearly, is poor response, given that the scheme has passed the halfway mark.

Since its inception in 1999, Tufs has released nearly Rs 11,200 crore of subsidy. Of this, Rs 8,883 crore was issued during its last three years before the break. Tufs catalysed investments of Rs 2.08 lakh crore during its 11-year life, says the textile ministry’s data.

But, this time, the response has so far been not good, notes A B Joshi, commissioner, ministry of textiles. “Beginning January, we expect it to pick up,” he adds. “The demand this year is lower compared to the previous year. We had hoped for a good response when we re-launched it.”

The textiles ministry is planning to hold road shows in tier-II cities to create awareness about Tufs. The main reason for the dull response, it believes, was the timidity of the garment sector, owing to uncertainty in major economies of the world.

High volatility in the sector is why the bulk of the SME (small and medium enterprises) units in the garments sector are not looking at long-term investment,” says Chandrima Chatterjee, director (compliance and economic & consultancy), Apparel Export Promotion Council. “Also, Bangladesh has posed as a threat to the Indian garment industry.” And, economic uncertainties are staring at the US and eurozone countries that are India’s biggest export markets.

Garment manufacturers say they are not interested in applying for the scheme, as they feel increasing capacity is not an ideal option at this time. Says Mitesh Shah, vice president (finance and corporate affairs) of Mandhana Industries: “Rather than expanding garment business in India, apparel manufacturers are moving to Bangladesh. For, the cost of production there is much less. Further, the Indian government recently allowed duty-free imports of 48 textile items from Bangladesh. Indian businesses are using this concession to import goods from there for use in the country’s market.”

In the current Tufs scheme, the weaving sector was granted a 10 per cent capital subsidy for the new shuttleless loom. This has been done to eventually do away with the use of secondhand looms; thus, it should prove beneficial. Earlier, only the garment and processing sector enjoyed the 10 per cent subsidy.

Now, the spinning sector’s interest reimbursement has been reduced to four per cent from the earlier five per cent. The new scheme has a major drawback: the maximum repayment tenure of loans has been reduced from 10 years to seven years. The two-year moratorium period remains as before, but the subsequent repayment has been shortened to five years from eight years.