The government is planning a major revamp of its master incentive plan for capital investments in the textile and apparel sector to improve its performance and align its objectives with other recently launched programs, including the Production Linked Incentive Scheme (PLI) and mega parks, FE official sources said.
While notifying the Adjusted Technology Upgrade Fund (ATUFS) Scheme in January 2016, the Government has made an outlay of Rs 17,822 crore (Rs 12,671 crore to clear outstanding claims under the scheme’s previous glyphs and Rs 5,151 crore to implement ATUFS) up to FY22. The scheme is supposed to mobilize new investment of around Rs 95,000 crore in the textile and apparel sector by FY22 and create 3.5 million new jobs.
However, up to FY21, projects worth Rs.46,861 crore can only be catalyzed, while support disbursement is Rs.3,378 crore.
“So, instead of just expanding ATUFS with the same structure, the government decided to renew it,” a source said.
One of the sources said that the new plan that is being developed will focus on disbursing rapid support for large investments and better stimulating sectors that have high employment potential. He added that the push could be increased on technical textiles and synthetic fiber products, in conjunction with the recently launched PLI scheme of Rs 10,683 crore for these sectors.
Likewise, while subsidies as high as Rs 5 crore are currently cleared within a short period (a week, in most cases), subsidies above this amount for big ticket investments usually take much longer. It is expected that this process will be expedited.
Industry sources said ATUFS is set to miss the investment target by a wide margin, as cash-strapped firms in the labor-intensive sector cut back on both technology upgrades and capacity expansion, even before the pandemic hits. However, given the current economic recovery in major export markets such as the United States and the European Union, significant investment could flow in if the government plans meaningful interventions, they added.
The new scheme is likely to be designed to help the textile and garment industry gain scale and boost exports, complementing the PLI scheme and schemes for the massive textile complex. It will also facilitate upgrading of existing looms to looms with better technology, ensuring quality in processing and reducing the import of fabrics by garment companies.
TUFS, the oldest version of ATUFS, was introduced in 1999 to provide the textile industry with funds to upgrade technology in existing units as well as to create new units with state-of-the-art facilities. The idea was to improve its viability and competitiveness in both domestic and export markets.
Under the current scheme (ATUFS), technical apparel and textile companies are subsidized at 15% on capital investments, subject to a cap of Rs 30 crore per investor. The remaining sectors, such as weaving, processing, jute, silk and handloom, get 10% with a maximum of Rs 20 crore.
Prior to the introduction of ATUFS, the various versions of TUFS had attracted investments of over Rs 2.71 crore in about 16 years up to FY2015, according to an earlier official estimate. Subsidies of Rs 21,347 crore were disbursed under the scheme during this period and many outstanding claims were subsequently settled. The capital-intensive spinning industry has been the biggest beneficiary of TUFS, with most investments made in this sector. Of course, with the change in incentive structure under ATUFS, spinning mills have not reaped the benefits in recent years. Also, the addition of large-scale capacity in spinning in previous years did not encourage them to undertake a new expansion.