TUF scheme of the Ministry of Textiles, Government of India can be cited as one of the best examples to demonstrate the influence of government fiscal policy and focused financial assistance upon the structure and growth of any industry. TUF scheme though was launched in 1999 but the major surge in investment under the scheme came only after 2003-04 when the Government made significant policy reforms related to the textile industry in India.
TUF scheme was meant to stay for a period of 1999-2004 initially. However its contribution, in terms of interest reimbursement, capital subsidy and margin money subsidy, towards investment in modern machine park in textile industry led to its continuation till date, which may continue in future also. It is estimated that near about $50 billion investment was made in textile industry during 1999-2015 and interest subsidy equivalent to about 7-8 per cent of total investment, released to the industry.
As natural, a large part of the investment under TUF scheme has gone to the sector like spinning, which is globally competitive supported by strong fundamentals. In this regards, availability of wide varieties of raw material, both cotton and manmade fibre, technical expertise in producing large range of products and competent manpower may be quoted here. In addition to this, global business environment in terms of reducing cost competitiveness of China´s spinning sector due to costly cotton and high cost of production chiefly labour cost has also given spurt to India´s spun yarn production and cotton yarn exports. Additionally, textile policy of various states like Maharashtra, Gujarat, Andhra Pradesh, Rajasthan and other states facilitated investment in the textile industry.
The lower utilisation of TUF scheme in weaving and fabric processing can be partially attributed to the steep and long learning curve linked with complexities of production due to modern technology in these segments. This, in turn, was a result of lopsided policies followed in the past reflected in less than four per cent share of organised sector in country fabric production. However, the weaving and processing segment of the Indian textile industry is now poised for growth due to increasing competitiveness of Indian fabric, chiefly cotton fabric in international markets especially in Asia.
Effectiveness of the scheme like TUF depends upon the congenial business environment. This warrant holistic treatment of the subject. Beside increasing financial attractiveness of the TUF scheme for investment in these sectors, specific policy actions aimed at increasing cost competitiveness are required to ensure that support given in terms of enhanced TUF subsidy to these sectors may not be nullified by rising cost of production including cross subsidy on power, cargo transportation, non-refund of taxes paid on exports, etc. Similarly investment especially in RMG export sector cannot take off till necessary labour law reforms are announced. Addressing challenges emerging out of trade agreements like TPP and R-CEP are pre-conditions to improve global market access, which is a must for increasing supply capacity (investments) for global market. Further, there are incidences of delayed payment of subsidy, unclear status of subsidy on projects falling in the period of June 29, 2010 to to April 28, 2011, when subsidy was stalled for restructuring of the scheme, revised committed liabilities in M-TUF cases (due to wrong data submitted by banks earlier) on which corrective action is pending at Government end, action pending on list II cases, where revised committed liability submitted by banks, disallowance of 5 per cent contingency margin (on TUF compatible machinery in the scheme) and 20 per cent towards cost of accessories/attachments, by some banks, if not purchased from the same suppliers, etc. It is also reported that due to such issues, sometime the subsidy allocated for disbursement<