The Inadequate Earmarking of Funds for TUFS – Dark Cloud for Textile Industry!
The Textile Sector plays a crucial role in Indian economy. The sector has major share in country’s economy in terms of GDP, export earnings, industrial output & most importantly in employment generation. Though the sector has presence in country since ancient times, it has witnessed problems of obsolete technology resulting in low production & poor quality. Higher machinery cost is major setback in modernization of technology. To address this issue, Ministry of Textiles has introduced Technology Up-gradation Fund Scheme (TUFS) in year 1999. The scheme has been serving as “Sanjivani”(Life Giving) for Textile sector since then. It was introduced with an aim to boost an investment into textile sector and the industry could get full advantage out of it.
The main objective was to upgrade the machineries into most modern state-of-the-art technology to face global competition. The scheme helped in fostering the investment across Textile Value Chain over the period of time. TUFS was initially introduced for 5 years of period with 5 % interest subsidy on machinery which was subsequently extended up to year 2007. The scheme was continued in modified form from year 2007 to 2010. The restructured TUFS was extended from 2011 to 2012 which was further rolled up to 2013. So the scheme has been modified over the period of time to ensure the balance across the Textile Value Chain. The last modification has notified in year 2013. Total fund released under TUFS is Rs.18211 crores till FY 2014-15. Total investment facilitated by TUFS is Rs.243721 Crores.
Though the TUFS subsidy has boosted the overall investment in textile sector, investors are facing many issues in availing subsidy. Today’s investor is very smart. He keeps on exploring new opportunities of investments. Though Textile business has presence in India & it is passed on from generations to generations, entrepreneurs are no longer loyal to the business. If one sees any new business opportunity with less investment & better returns, he will not hesitate to diversify into other business area. Already, many investors are thinking on options for diversification into other segments. But, if we see huge global & domestic demand of textile and apparels, there is great scope of investments in the sector. India being strategic location for Textile sector due to abundant availability of raw materials & skilled manpower, we still have huge scope for capacity expansion. TUFS is being catalyzing the investment in Textile sector, but most of the investors complaining that availing TUFS subsidy have been a cumbersome job. Delay in TUFS subsidy is one of the major reasons in maintaining time lines of the project. It also leads in huge loss of money and promoter needs to look for alternative resource at much higher cost. So, let us put light on some the major problems faced by investors.
Problem faced by the Investors
- Cumbersome Procedure
Textile is very capital intensive sector. Machinery forms major part of capital cost. Considering this very fact, the Government has introduced the TUFS scheme. But, average time taken for disbursement of funds from ministry ranges from 24 – 36 months whereas average time for implementation of textile project is 12- 18 months. Longer period in availing subsidy makes it difficult to complete project in stipulated time & in turn resulting into huge losses for investors. The procedure to be followed in getting subsidy is very simple. It starts with application by investor seeking assistance to the nodal banks / nodal agencies / coopted PLIs with project details and Detailed Project Report (DPR). Lending agency will submit the information online in the prescribed format to the Textile Commissioner (Mumbai), after determination of eligibility and admissible amount under Restructured TUFS for each case. On receipt of the information in the prescribed format, the Textiles Commissioner will issue a Unique ID (UID) number to pre-authorize the loan application for submission of subsidy claim by the lending agency. On receipt of subsidy from the Ministry of Textiles, the lending agencies will transfer the amount of subsidy into beneficiaries’ account within a period not exceeding three days. Though the procedure is simple, lack of co-ordination between the nodal agencies & monitoring makes it cumbersome for investors.
- Blackout period
The ‘blackout period’ for the Indian Textile industry corresponds to the duration between 29 June, 2010 and 27 April, 2011 when no funding support was available. The modified TUFS was suspended in June 2010 and the revised TUFS was introduced in April 2011. Lack of fund support creates insecure atmosphere amongst investors during “blackout period”. Most of investors put their projects on hold due to lack of support so it’s necessary to have continual fund support to the investors to catalyze investments during such low periods.
- List of machinery
List of sector-wise machineries covered under TUFS should be reevaluated. Some of segments like linen spinning are value addition in conventional spinning & it needs to be given special attention as it has great demand & potential. For such segments, special rates of subsidies to be given. It is necessary to identify & offer special subsidies to propel the investment to such sectors.
TUFS is a great initiative started by Ministry of Textile. But inadequate earmarking of funds & lack of co-ordination between nodal agencies is resulting into delay in availing subsidies. Ministry of Textiles (MoT) should forecast the total investments & required funds outlay for TUFS well in advance for each year. This can be only done when applications for UID should reach to the MoT at the planning stage of the project but not at the implementation.
Currently lending agencies are furnishing subsidy requirement on quarterly basis. This can be done on-line basis which will not only avoid accumulation of applications but will make procedure faster. Faster UID generation will help MoT to forecast fund requirement well in advance. This will definitely avoid the inadequate earmarking of funds. Once adequate fund support is available each year, automatically the delays can be shortened by continuous monitoring & coordination further.
In fact consultants like us have smartly identified the need of the textile industry. With in-depth knowledge base and proven track record, we are assisting investors for availing TUFS subsidy. With the strategic approach and continuous monitoring & co-ordination, we are all set to assist industry players to avail TUFS subsidies timely.
Let us carve out …
better tomorrow !!!
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