Reduction in repayment period to hit new units: Sima

Though the reintroduction of the Technology Upgradation Fund Scheme (TUFS) after a gap of nine months has set the ball rolling with regard to projects that were kept on hold, including those of spinning mills, looms and other textile sector investments, the reduction in repayment period for loans is likely to make things difficult for these units.

“It is difficult for the units to repay debts in seven years, as the industry is currently operating on a thin four-to-five per cent margin, while the cost of funding and inputs has gone up steeply,” K Selvaraj, secretary general of Coimbatore-based Southern India Mills Association (Sima), said.

“Not a single non-performing asset (NPA) was reported when the repayment period used to be 10 years under this scheme,” he told Business Standard.

Welcoming the extension of the restructured TUFS from the period April 28, 2011 to March 31, 2012, he however said the government should also consider enforcing the scheme with retrospective effect, since some people had taken the risk of executing projects during the nine-month period when the scheme was not available.

The five per cent interest rebate given to units under the scheme has become more significant in sustaining the operations of spinning mills and other projects in the textile value chain, as bank interest rates are currently ruling at over 13-14 per cent, compared to 7-8 per cent a few years back, according to him.

Considered most successful, the scheme attracted close to Rs 2 lakh crore of investments into the textile industry in the last decade, and is expected to see an inflow of Rs 1.55 lakh crore more in the next five years.

The two-year moratorium on loan repayment is also not adequate because of longer delivery schedules of machinery companies such as LMW, that take at least three years to complete the supply in phases owing to huge demand, according to Selvaraj.

The three major players — KTTM, LMW and Reiter — together have an order book of 4.5 million spindles for the year 2011-12, according to an industry estimate. Spinning continues to be the major beneficiary of TUFS even under the revamped scheme, as the government envisages higher value addition capacity in tune with the growth in India’s cotton production.

The total installed capacity of textile mills in the country as on May 31, 2010, stood at 38 million spindles under major and 4.4 million spindles under the small-scale sector.

Unlike last year, the textile industry is seeing lower demand due to a dip in consumption in domestic as well as international markets. This has led to piling up of yarn stocks. With yarn prices falling, spinning mills in Tamil Nadu, Andhra Pradesh and elsewhere in the country are operating at reduced capacities, according to Sima.

Suspension of cotton exports and removal of duty draw-back on yarn exports are dubbed as major causes of the glut in the domestic market. "It may take a couple of months more for the market to stabilise in terms of demand and prices. It is not fair to fix a cap on yarn exports early on — that too, based on the feedback received by a few mills, in the given scenario," Selvaraj said.