Debate over TUFS extension spills over

Amidst reports that the finance ministry is not in favour of extension of Technology Upgradation Fund Scheme 8212; the most successful scheme in the textile sector...

Amidst reports that the finance ministry is not in favour of extension of Technology Upgradation Fund Scheme TUFS 8212; the most successful scheme in the textile sector 8212; the industry and the textile ministry has come out strongly against any such move calling it a regressive measure.

The ministry of finance is of the opinion that TUFS needs to be discontinued beyond the 10th five year plan and funds should be re-allocated for infrastructure grants in projects like Scheme for Integrated Textile Parks SITP. But the utility of the fund is such that textiles minister Shankersinh Vaghela has said that the ministry will give unstinted support to the extension of the scheme till atleast 2010.

8220;TUFS has in a way opened gates for investments, if we analyse the developments in the last two years since the quotas were removed, there is clearly potential for more investment,8221; Vaghela said. Since its introduction in 1999, investment of Rs 47,217 crore has happened under TUFS but after the phase out of the quotas in January 2005 the investment has shot up to over Rs 24,000 crore. Further, TUFS is expected to generate Rs 30,000 crore worth of investments in the next fiscal alone and is the single biggest reason why the projected investment figure of 1,40,000 crore by 2010 seems achievable.

According to industry, continuation of TUFS is all the more important now than ever before. 8220;The sector was in recession when it was introduced in 1999. What we have seen in the last two fiscals is just going to accentuate further in the coming years,8221; said Confederation of Indian Textile Industry chairman Shekhar Agarwal.

But with the tug of war between the two ministries in the back ground, focus has now shifted to what the scenario could be if TUFS is actually discontinued. CITI in its latest vision statement for 2007-12 based on a study by Crisil has concurred that the sector will require an additional investment of Rs 1,94,000 crore and generate employment for almost 1.40 crore. On the back of this industry is poised to grow to 110 billion from 52 billion in FY 2006. But all of this will happen only if TUFS is extended till 2012 in its present format, the report says.

8220;In a scenario without TUFS we will most definitely lose the momentum of growth. Already the return on investments in the sector is low and TUFS only made investments attractive by offering rate of return comparable with other industry segments,8221; said CITI Secretary General D K Nair.

Is the growth story over?

8226; Growth in exports to US seem to be tapering off. Bangladesh, Pakistan, Cambodia and Vietnam have scored higher growth in the last few months.

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8226; Even with its low labour cost India scores badly on labour productivity, power and transaction costs.

8226; Imports have been steadily rising. Fabric and yarn imports are growing at 39 and 14 per cent per annum respectively. Spate of FTAs will give further fillip to it.

8226; TUFS discontinuation may see industry shifting to favourable locations like Kazakhstan and Uzbekistan.

8226; Ministry has quashed any doubts over WTO compatibility of TUFS, says it is an incentive not a subsidy.