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SIMA voices industry's contempt on TUFS payback period cut

24 Jun '11

4 min read

Technology Upgradation Fund Scheme (TUFS) has always been talk of the town being popular sop from policy makers. However, on one side re-allotment of the scheme announced after nine months with regard to textile mills and investment projects kept on hold, has surely brought relief in air, but on the other side, the cut from ten to seven years in the payback period for loans is cause of contempt for scheme's benefit availing units, presently.

Explaining its policy structure, and justifying the angst on unrealistic settlement span amongst beneficiaries of the scheme, Coimbatore-based Southern India Mills Association (SIMA) Secretary General Dr Selvaraj, in a talk with Fibre2fashion, says -“If we study data since April 1999- the origin year of the scheme, no project or even the best regarded company in textiles shows a payback period of seven years-the initially stipulated time. This is because in the implementation period, unlike any other industry, here there are many bottlenecks. One reason is availability of medium and another is clearance.”

Mr Selvaraj elaborates further that the profit margin for textile industry is only 4-6% as per RBI data as against 8-12% in other industries or 20-30% in the IT industry. General engineering industry also has 10-15% profitability. According to him, since the last two years, as per the RBI data, the textile industry has not exceeded 6% profitability. Being a labor intensive sector and the second largest employment provider, particularly for the people below the poverty line and women force from rural India, the Government has been supporting this industry. Therefore, at the request of the banks and the industry, the Government increased the repayment period from seven years to ten years, he informs.

“But, in my opinion, this time while reducing payment term from ten to seven years again, they have not gone through earlier records or ignored earlier records or they do not want the investment to happen. Otherwise, I see no other reasonable factor,” he pours out candidly.

He also believes that by this period extension, the funding banks are not losing as the chances for repayment thus increase and defaulters are likely to be negligible. “In my opinion, mills are earning for banks. Even loans for house, which is individually owned and guarantee on their settlement is less, one is allotted payback time about 20 years, whereas a company being earning asset therefore merits more confidence,” he makes point.

He also adds that, if one increases one's margin to continuously modernize or expand but if he repays all the money made, then after seven years that person will be out of business. This is something which the government should consider seriously and roll back to the ten years repayment period because any rating agency's reports or Forex agency's reports or even the Exim Bank reports will show that seven years repayment period will not be viable, Mr Selvaraj assuredly suggests.

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