Textile fund plan may be extended

Under pressure from the textile industry to continue the successful technology upgradation fund scheme (TUFS) beyond the March 31, 2007 deadline, the government may consider extending the scheme into the 11th Five-Year Plan with a cut in some of the sops.

Government sources revealed that the subgroup on textiles and apparel, set up under the aegis of the textile ministry, was under great pressure to extend the scheme but would probably do so by amending the present rate of returned interest.

"When TUFS was introduced in 1999, the interest rates were much higher, in the order between 16.5-17.5 per cent, but now that has fallen to about 8.5 per cent. At 4.5 per cent inflation and 5 per cent interest reimbursement, the entrepreneur is now effectively getting loans under the scheme at about 1 per cent," said a government source.

"Talks are going on at present with the industry and the scheme will probably be extended to the 11th Five-Year Plan on popular demand but the rate of interest reimbursement might be lowered slightly to bring it on par with the existing interest rates," the source added.

The subgroup on textiles and apparel is presently hammering out the structure of TUFS for the 11th Five-Year Plan and is expected to submit its recommendations by the month-end to the working group chaired by Textiles Secretary DP Singh by the end of the month.

The working group, in turn, will consider the recommendations and submit its proposals to the Planning Commission by the end of September.

TUFS was first introduced on April 1, 1999 for a period of five years and then subsequently extended up to March 31, 2007, which coincides with the end of the 10th Five-Year Plan.

After a lukewarm response in the initial years, the scheme became popular from 2003-04 and saw funds worth Rs 15,032 crore being sanctioned by the textile ministry in the last financial year. Officials said this was on trajectory to touch Rs 30,000 crore this financial year.

Benefits under the scheme include 5 per cent interest reimbursement of the normal interest charged by the lending agency or 5 per cent exchange fluctuation from the base rate on foreign currency loans.

An upfront capital subsidy of 20 per cent for the powerloom sector was included in October last year.

For some specified processing machinery, an upfront capital subsidy was also included from April 2005, in addition to the 5 per cent interest compensation.