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It is time TUF focussed on dyeing units

Next in priority should be the employment-intensive readymade garment sector facing competition in world markets

— FILE Photo

CONCERN FOR ECOLOGY: A dyeing unit in Tirupur, the knitwear industry hub of the country.

IN THE budget 2007, the Finance Minister has extended the Technology Upgradation Fund Scheme (TUFS) for the textile industry for five more years. Consequently, the scheme will continue up to 2012, to be co-terminous with the Eleventh Plan period.

The circular No. 1 (2007-2008 Series) dated April 4, 2007, issued by the Office of the Textile Commissioner, states that the Technology Upgradation Fund Scheme (TUFS) has been extended beyond March 31, 2007, subject to necessary modifications in consultation with the stakeholders. Sanction of loans has been kept in abeyance with effect from April 1, 2007, till the finalisation of modifications.

It is necessary to analyse the impact of the scheme in the past and see whether its operation has been consistent with its avowed objectives as spelt out in the Resolution No.28/l/99-CTI dated March 31, 1999, of the Ministry of Textiles, which inter alia contained the following statement.

"Given the significance of this industry to the overall health of the Indian economy, its employment potential and the huge historical backlog of technology upgradation, particularly in the context of the liberalisation of the national industrial and trade policy and globalisation of textile trade, it has been emphasised by experts that in order to sustain and improve its competitiveness and overall long term viability, it is essential for the textile industry to have access to timely and adequate capital at internationally comparable rates of interest in order to upgrade its technology level. "

In short, the scheme was primarily enunciated to reduce the high capital cost.

In the initial period of eight years, it was the spinning segment, (which was originally not intended to be covered by TUFS) which consumed the lion's share of the TUFS benefit at the expense of export oriented readymade garments (RMG) and made up segments, in which a large a work force is employed.

Composite segments consist of composite mills having necessarily spinning and weaving facilities. These units may or may not have processing facility. In composite mills, 271 applications have been sanctioned with a proposed project cost of Rs. 12,045 crore in the non-SSI sector.

This means an average project cost for this segment works out to Rs. 44.45 crore. Similarly, in the SSI sector of the composite segment, the average cost for the project works out to Rs. 1.83 crore.

In the spinning segment, in the case of the non-SSI sector, the average project cost works out to Rs. 19.20 crore, while in the SSI sector, the average project cost works out to Rs. 1.70 crore.

It is also the big corporate composite units and large spinning units in the non-SS1 sector, who have cornered the benefits in a big way. These measures are certain to have reduced the employment potential in the spinning segment as a result of the installation of more automated machines and affected the viability of small spinning mills.

Value added exports in the textile industry are mainly from the knitted and woven garment segments as also from the made ups segment. These segments face global competition.

Hence segments other than spinning, like processing, garment manufacturing and the made ups manufacturing should become major beneficiaries of the TUF scheme in its second phase, to increase the foreign exchange earning.

First and foremost, the processing segment should be given a further boost. Notwithstanding the fact that the TUF scheme introduced 10 per cent capital subsidy, apart from the 5 per cent interest subsidy for investments in the processing segment, the investment in processing has not seen the expected surge. In the non-SSI processing segment, 363 applications, with a total project cost of Rs. 6,051 crore were cleared under the TUF scheme between 1999 and 2006.

The average project cost works out to Rs.17.14 crore. In the SSI sector, 479 applications were sanctioned with a total project cost of Rs. 594 crore, with an average project cost of Rs.1.24 crore. The amount sanctioned for the spinning sector was about 2.5 times the corresponding amount sanctioned for the processing sector. The demand for processing machines has been lukewarm. In fact during 2002-03 and 2003-04, the demand for processing machines touched a new low as compared to other machines. This improved to 12 per cent, perhaps after the announcement of 10 per cent capital subsidy on the processing machines.

The main reason behind this is the stringent pollution control requirements of the State Pollution Control Boards. Only units with emission discharge arrangements are considered for approval. But the industry is struggling to locate a viable discharge solution.

A number of units have invested large sums in the past few years, only to find that the systems have proved inadequate technically.

Unlike in the case of other machinery manufacturers, there is no credible suppliers' list in the effluent treatment area. There is, therefore urgency that the TUF scheme should address this problem.

The TUF scheme should come out with 25 per cent capital subsidy and 5 per cent interest subsidy, for investments in discharge plants. Textile research associations should analyse the plants offered by different suppliers.

Next, on the priority list, are the export oriented readymade garments and the made-up which have already lost some of the benefits like exemption under Sec. 80 HHC of the Income-tax Act and also face fierce competition from China, Pakistan, and Bangladesh. The investment on plant and machinery for these segments should also be subsidized at least to the extent of 20 per cent, like in the case of the weaving industry. The 5 per cent interest subsidy should continue. Such industries need a lot of investment on Information and Communication Technology. These investments should be covered under 20 per cent capital subsidy.

The bygone years of the TUF scheme have seen compromises in the benchmark technology levels from time to time in terms of residual years of imported machinery.

The proposed modified policy should be consistent with the policy of subsidizing only genuine technology upgradation. The benchmarked technology levels should not be compromised at any point of time under pressure of lobbying.

M. Sivakkannan

The writer is Ex-Chairman, Handloom Export Promotion Council

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