Technology Upgradation Fund Scheme (TUFS), introduced in April 1999 has proved to be unique for more reasons than one. It significantly helped in modernization and expansion of capacities in various segments of our textile and clothing industry. This, in turn, effectively assisted the efforts of the industry to expand production and export of textile products and, in the process, created a large number of jobs in the manufacturing sector. TUFS turned out to be perhaps the only scheme for bank loans with practically no default in repayment. The scheme has also helped in substantial expansion of the textile machinery industry of the country, in the wake of huge investments in textile sector driven by TUFS. In fact, any delay or uncertainty in TUFS has been sending the machinery industry into jitters at least as much as the textile industry itself, since machinery sales are closely linked to the Scheme.
On the basis of experience gained during the implementation, several modifications were effected in the Scheme from time to time. Thus, some of the vital machines which were originally not covered by the Scheme got included in stages and a concept of Upfront Capital Subsidy was introduced for the decentralized sectors and SSIs. In order to encourage higher investments in areas of high potential, upfront capital subsidies were introduced for processing and technical textiles, in addition to the 5% interest compensation. Meanwhile, from 2003-04 onwards, a marked improvement in the cotton economy following introduction of Bt seeds and the anticipated abolition of bilateral quotas by 2004 increased the hunger for capacity building in the industry. These developments gave a fillip to the off-take of loans under the Scheme.
While extending the Scheme to the 11th Five Year Plan period (2007-12), government introduced several changes in it, mostly with the intention of reducing the requirements of funds. A downward revision of the rate of interest compensation for spinning from the earlier 5% to 4% and restricting interest compensation for land and building only to the garment industry – that too only to the extent of 50% of the investments on these – were some of the major changes. As an added encouragement to the garments sector, the upfront subsidy of 10% that was earlier available only for processing and technical textiles was extended to the garment industry also. Used machines were removed from the eligibility list, with the exception of shuttleless looms. However, TUFS continues to drive the investment spree in the textile sector, requiring continued funding by banks and assistance from government. Government has therefore suspended sanction of fresh loans under the Scheme and is in the process of modifying it further for curtailing the fund requirements for meeting the commitments for TUFS assistance. Various stakeholders have furnished their suggestions for further modification of the Scheme and these are currently being examined by government.
It is ironical that the very success of the Scheme has turned out to be its enemy. The increase in the requirement of funds for TUFS assistance has been inviting resistance against the Scheme from some government departments. Demands for similar schemes from many other industry segments have made the situation even more complex.
The paucity of funds for TUFS is understandable, given the increase in social sector spending in recent years and the deficit in the Central Budgets. But an objective and in-depth analysis will show that the scheme has been serving the social and economic objectives of the nation, in addition to helping the textile sector to grow. It has been driving investments in various segments of the textile value chain, which in turn generate millions of jobs – mostly for rural women and workers all over the country with practically no skill sets to begin with. Unlike the social sector schemes TUFS creates sustainable jobs, with most of the expenditure coming from the private sector. It needs to be kept in mind that every Rs.5 spent by government in the scheme drives an investment of not less than Rs.105 by the industry.
TUFS also leads to significant income for government. Additional textile production through capacities established using this scheme substitutes potential imports of intermediate products for home textiles and clothing, thus conserving foreign exchange. The scheme has improved profitability of various segments in the textile and clothing industry, increasing corporate tax on profits. Customs and excise duties are collected on machinery and other inputs used for the TUFS projects. Revenue is also generated from fibres and other inputs that bear excise duties. In fact additional revenue generated with the help of this scheme would more or less offset the entire government expenditure on TUFS.
Thus, funds used for TUFS score over the other social sector spending of government by driving huge private sector investments that sustain the livelihood of millions of relatively under-skilled workers and, at the same time, generate significant additional revenue for government.
