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Restructured TUFS of no avail to ailing Indian textile sector
Nov '11
The restructured Technology Upgradation Fund Scheme (TUFS), launched in April 2011 by the Ministry of Textiles has failed to garner interest from the Indian textile sector, which is still looking for stability.

The earlier subsidy scheme for upgradation of technology in the textile sector, which was a huge success, was replaced with the restructured scheme for 2011-12. Under the earlier TUFS scheme, a subsidy of Rs. 112 billion was released since its inception in 1999. Of this, an amount of Rs. 88 bilion was availed only during the last three years of the scheme.

In comparison, an amount of Rs. 19.72 billion has been sanctioned for the restructured scheme that ends on March 31, 2012. Through this, the Ministry expected to fetch an investment of around Rs. 479 billion in the textile industry. Although the scheme has completed half of its duration, only Rs. 2 billion has been availed as subsidy under the scheme so far, clearly reflecting a lack of interest towards the scheme.

In the reintroduced scheme, the interest reimbursement for the spinning sector has been reduced to four percent from the earlier five percent. Another change in the new scheme is the decrease in the maximum repayment tenure of loans from 10 years to seven years. Although the two-year moratorium period remains the same, the subsequent repayment has been reduced to five years from eight years.

Talking about the reason behind the poor response to the scheme, Mr. Mitesh Shah, Vice President (Finance and Corporate Affairs), Mandhana Industries, told fibre2fashion, “Ever since April 2011, when the scheme was restructured, macroeconomic changes have been taking place all across the globe, mainly in the textile and garments export industry. Now, with the demand not materializing to a great extent in the global market, both Europe and the US, the expansion programmes in India have been put on hold.”

“Currently, the garment manufacturers are finding it difficult to justify their production costs and capacities itself, so they cannot think of expanding the capacity at this stage. The rise in interest rates has further made the situation difficult and contributed to slow pick up of the TUFS scheme as far as Indian garment industry is concerned,” he reasoned.

Mr. R Rajendran, Director-Finance, Lakshmi Machine Works (LMW) adds, “The subsidy provided under TUFS does not help substantially on account of rising cost of interests. Earlier since the interest rates were lower i.e. 7-8 percent, the five-percent interest subsidy was a substantial amount and the overall interest burden would reduce to 3-4 percent, which is at par with global standards. But now, with the interest rates going up for the past few months, TUFS is becoming less attractive.”

“From the textile industry aspect, the fluctuations in cotton and yarn prices may also be a reason for deferring to avail the benefit of the scheme,” he opines.

On the same lines, Mrs. Chandrima Chatterjee, Director (Compliance and Economic & Consultancy), Apparel Export Promotion Council (AEPC) says, “We are seeing a lot of volatility and big investments require long-term planning which is not possible in the current scenario. The textile industry has a large majority of small and medium enterprises (SMEs) whose risk taking appetite is little lower, which is why the investments are on a little lower side.”

She informs that AEPC can play a major role and asserts,” AEPC has taken certain steps and has ensured certain policy measures to see that there is a little more investment in the sector. For this, new products and markets are also being advised to the exporters so that they see a potential for expansion.”

Fibre2fashion News Desk - India

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