The amended technology upgradation fund scheme (ATUFS) would further encourage investments into the textile sector but total benefits to companies may be lower, India Ratings and Research today said.
The Cabinet Committee of Economic Affairs had last week cleared the ATUFS for the textile sector which is witnessing sluggish investments.
Ind-Ra said the amended scheme is likely to give impetus to modernisation and scaling up of existing production facilities and for green field investments.
"The total benefit to textile companies is likely to reduce due to the change in the nature, quantum and target segment for benefits under the scheme (ATUFS)," Ind-Ra said in a statement.
It said the subsidy would be largely capital based, a change from the earlier interest and capital base.
"The garmenting segment will receive a higher subsidy as compared to the other segments, while the overall quantum of subsidy appears to have reduced," it added.
Besides, by capping the subsidy amount, the benefits of the scheme have been channelised towards small to mid-sized enterprises instead of large companies.
It said ATUFS stipulates only a capital subsidy, instead of the interest cum capital subsidy prevalent under the earlier version of TUFS. This could be a setback for processors and weavers which enjoyed both capital and interest subsidy.
For weavers, the new policy is particularly unfavourable since it reduces the capital subsidy and it also withdraws the interest subsidy, Ind-Ra said.
As per the amended scheme, the subsidy amount is capped, which was not the case earlier. The capping of the subsidy implies that larger projects will be largely self-reliant, while providing higher support to small and medium enterprises.
"This is a setback for the large sized projects as it will reduce the subsidy benefit substantially for fresh capex by the larger players.
"While capping will help distribute the subsidy amongst a larger number of players, however, there is a possibility of break-up of larger projects into different entities to avail benefit under the scheme," Ind-Ra said.
It said India has the largest spinning capacity globally but only accounts for four per cent of the total global garmenting exports, indicating the need to build capacity in the value added segments.
Between April-November 2015, India exported textile and allied products worth USD 23.51 billion, which is 13.5 per cent of total exports. It has declined 2.5 per cent year-on-year.
