Has the TUF scheme failed to sup­port growth of tex­tile in­dus­try?

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Since its in­cep­tion in 1999, the Tech­nol­ogy Upgra­da­tion Fund (TUF) scheme in­tro­duced by the Min­istry of Tex­tiles has seen many ex­ten­sions, changes, ad­di­tions and amend­ments, yet the scheme en­vis­aged as a ve­hi­cle for mod­erni­sa­tion and ex­pan­sion of the tex­tile in­dus­try and sub­se­quently the tex­tile value chain, has al­ways been a mat­ter of de­bate. De­spite the ex­is­tence of such a ro­bust scheme, the lat­est re­port on the health of tex­tile mills is dis­cour­ag­ing with 682 tex­tile mills shut­ting down in 2017. Of them, 232 mills were in Tamil Nadu, 85 in Ma­ha­rash­tra, 60 in Ut­tar Pradesh and as many as 42 such mills were in Haryana. Why the TUF scheme has failed to ar­rest the de­cay in the mills sec­tor, is wor­thy of an anal­y­sis.

Ac­cord­ing to Govern­ment records, more than Rs. 21,000 crore has been pro­vided as as­sis­tance to the in­dus­try dur­ing 1999-2015, yet the core is­sue of mass adop­tion of newer tech­nolo­gies, cru­cial for mak­ing the tex­tile in­dus­try glob­ally com­pet­i­tive and re­duc­ing soar­ing cap­i­tal costs, still re­mains. Many mills are still op­er­at­ing with old ma­chines and even older pro­duc­tion meth­ods and a ‘slow death’ is their in­her­ent fate. On the other hand, com­pa­nies like Arvind, Tri­dent, Ray­mond, to name a few, which have in­vested in new tech­nolo­gies and pro­duc­tion meth­ods have been suc­cess­ful in not only re­main­ing rel­e­vant in a com­pet­i­tive mar­ket, but also tak­ing the lead­er­ship po­si­tion in the tex­tile seg­ment.

While ev­ery­one unan­i­mously agrees that though the in­tent of the scheme is very rel­e­vant, the im­ple­men­ta­tion mech­a­nism is cum­ber­some and prone to de­lays in pay­ment. The main is­sue in

TUF is the model of dis­burse­ment of funds. For ex­am­ple, 5% in­ter­est sub­sidy means, one com­pany af­ter pay­ing this in­ter­est to the banks should get re­im­burse­ment from the Govern­ment. This leads to mul­ti­ple com­pli­ca­tions be­cause of in­volve­ments of sev­eral banks and many stages of pro­cesses. “TUF is use­ful, but we have to fine-tune the ex­e­cu­tion part. We have to de­sign a new sys­tem like, com­pa­nies can deduct the sub­sidy part in­ter­est dur­ing their pay­ments to banks, and in turn bankers can claim from the Govern­ment as re­im­burse­ment. This model only will solve all the prac­ti­cal dif­fi­cul­ties,” rea­sons Prabhu Dhamod­ha­ran, Con­venor, In­dian Tex­preneurs Fed­er­a­tion (ITF), Coim­bat­ore.

There is enough ev­i­dence that

TUF im­ple­men­ta­tion at the bank end has had ma­jor is­sues, due to which many play­ers have not re­ceived TUF for years and the rec­on­cil­i­a­tion work has still not been com­pleted. It’s es­ti­mated that about Rs. 6,000 crore is stuck up due to such is­sues which for many com­pa­nies is an is­sue of sur­vival.

“I must com­mend the Govern­ment for hav­ing made a beau­ti­ful seam­less sys­tem of pay­ment with no hu­man in­ter­face. How­ever, the lack of ed­u­ca­tion in many TUF cells and branches of banks and SME com­pa­nies has led to many be­ing stuck for years and still not be­ing clear as to how they will get the money. The Govern­ment has now fi­nally ini­ti­ated a rec­on­cil­i­a­tion process, hope the same gets com­pleted fast and com­pa­nies get their dues,” says San­jay Jain, MD, TT Ltd. and Chair­man CITI/ Tex­tile Sec­tor Coun­cil /NITRA. Of­ten, we hear from com­pa­nies that they ap­plied for TUF but got re­jected… So where is the gap? “The gap is of not un­der­stand­ing the terms and con­di­tions of the TUF scheme in vogue at the time of ap­pli­ca­tion. Peo­ple as­sume that old sys­tems are still be­ing fol­lowed, while the Govern­ment, based on its learn­ings has been con­tin­u­ously amend­ing things. This com­mu­ni­ca­tion gap has led to many prob­lems for many peo­ple,” shares Jain. Iron­i­cally, the very fact that the scheme has been flex­i­ble to change with time has been among its big­gest prob­lems. Dhamod­ha­ran is of the view that chang­ing the pol­icy con­tin­u­ously is also a very im­por­tant fac­tor for the suc­cess of TUF so that one can avoid ‘block out pe­ri­ods’ - kind of sit­u­a­tions com­mon in the schemes. It is in­ter­est­ing to note that among all play­ers of the tex­tile seg­ment, in­vest­ments in spin­ning worth

Rs. 34,347 crore (in the analy­ses pe­riod 1999-2015) much out­paced in­vest­ments made in the weav­ing sec­tor, which was Rs. 9,750 crore (in­clud­ing pow­er­looms and hand­looms) dur­ing the pe­riod. “De­spite its many pain points, TUF has def­i­nitely helped the in­dus­try grow, es­pe­cially the spin­ning sec­tor and large units have ben­e­fited im­mensely from the same,” opines Jain. How­ever, a mis­take many com­pa­nies in the seg­ment have made is to in­vest/ex­pand un­der

TUF, with­out proper ground­work and prac­ti­cal un­der­stand­ing of the in­dus­try, es­pe­cially the new play­ers. Many over­looked the fact that spin­ning mills de­pend on the avail­abil­ity of raw cot­ton at the right price and that TUF only takes care of fi­nanc­ing re­gard­ing the fixed as­sets. The is­sues of ar­rang­ing for fi­nance to meet the work­ing cap­i­tal re­quire­ments are still left in the com­pany’s own ac­cord. “Govern­ment should only use TUF schemes for value ad­di­tion in man­u­fac­tur­ing and also for mod­erni­sa­tion of tech­nol­ogy,” ar­gues Dhamod­ha­ran, adding, “For spin­ning ex­pan­sions, here­after Cen­tral and State Gov­ern­ments should not ex­tend TUF schemes for new projects be­cause al­ready In­dia is fac­ing ex­cess ca­pac­ity sit­u­a­tion in spin­ning and stand­alone spin­ning mills’ EBITDA and mar­gins are shrink­ing on Y-o-Y ba­sis for the past few years and , it’s dif­fi­cult for a stand­alone spin­ning mill to sur­vive and re­pay the debts in case of new in­vest­ments in cur­rent trends.”

The fu­ture and suc­cess of TUF scheme in bring­ing mo­men­tum to the tex­tile in­dus­try lies in in­vest­ments up­stream – in gar­ment­ing, home fur­nish­ing and tech­ni­cal tex­tiles. Un­der­stand­ing this, the Govern­ment made ma­jor amend­ments to the scheme in 2016, which are ef­fec­tive, up to March 31, 2022. The in­tro­duc­tion of ‘Amended Tech­nol­ogy Upgra­da­tion Fund Scheme’

(ATUFS) in place of the ex­ist­ing ‘Re­vised Re­struc­tured Tech­nol­ogy Upgra­da­tion Fund Scheme’ (RRTUFS), was con­ceived with a clear in­ten­tion to make TUF broad-based and in­clude many more ar­eas and en­hance the ben­e­fits un­der the new pro­posed tex­tile pol­icy. ATUFS pro­vide one-time cap­i­tal sub­sidy for in­vest­ments in em­ploy­ment- and tech­nol­ogy-in­ten­sive seg­ments of the tex­tile sec­tor with an aim at pro­mot­ing ex­ports and im­port sub­sti­tu­tion. It is be­ing looked upon as an im­por­tant tool to drive the Prime Minister's vi­sion of ‘Make in In­dia’.

Tex­tile com­pa­nies have re­acted very pos­i­tively to the move, but those com­pa­nies who have al­ready taken sub­si­dies un­der old schemes feel re­stricted as they can­not take ben­e­fits for new ar­eas like tech­ni­cal tex­tiles. “TUF scheme has been over the years op­ti­mally used by the in­dus­try, but since CIS (Cap­i­tal In­vest­ment Sub­sidy) per in­di­vid­ual en­tity is only Rs. 20 to Rs. 30 crore, it is not ben­e­fi­cial to the en­tire in­dus­try as Para 4.1.2 of guide­lines state. How­ever, in case the en­tity has availed sub­sidy un­der RRTUFS, it will be el­i­gi­ble only for the bal­ance amount within the over­all ceil­ing fixed for an in­di­vid­ual en­tity. This means that all the units al­ready avail­ing the TUF ben­e­fits in pre­vi­ous schemes can­not get the new loans un­der ATUFS due to ex­ceeds in the CIS cap value,” be­moans RK Dalmia, President, Cen­tury Tex­tiles.

To get full ben­e­fit un­der the amended scheme, en­sure that no re­jec­tions hap­pen and funds are made avail­able to de­serv­ing com­pa­nies; be­sides as­so­ci­a­tions need to play a more ac­tive role in ed­u­cat­ing their mem­bers. This is also im­por­tant in the wake of many states now com­ing up with ag­gres­sive poli­cies, which puts fur­ther thrust in ex­pan­sion and mod­erni­sa­tion. “How­ever, for in­vestors look­ing at state schemes, it is im­por­tant to first un­der­stand the track record of the Govern­ment in pay­ing them, oth­er­wise it may get dif­fi­cult for com­pa­nies whose vi­a­bil­ity is based on sub­si­dies,” con­cludes Jain pru­dently.

While re­plac­ing the Re­vised Re­struc­tured Tech­nol­ogy Upgra­da­tion Fund Scheme (RRTUFS), the new scheme (ATUF) is im­ple­mented across two broad cat­e­gories. For the sub-sec­tors of ap­parel, gar­ment and tech­ni­cal tex­tiles, up to

15% sub­sidy is pro­vided on cap­i­tal in­vest­ment, sub­ject to a ceil­ing of

Rs. 30 crore for en­trepreneurs over a pe­riod of five years. The re­main­ing sub­sec­tors are el­i­gi­ble for sub­sidy at a rate of 10%, sub­ject to a ceil­ing of Rs. 20 crore on sim­i­lar lines.

Spin­ning mills with lat­est tech­nolo­gies are now very com­mon in the In­dian Tex­tile In­dus­try

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