Garment sector to wear 10% capital subsidy

NEW DELHI: The garment sector, undergoing a difficult time due to rupee appreciation, is in for a major help. The government is planning to give a 10% capital subsidy to the sector under the modified Technology Upgradation Fund Scheme (Tufs). The revised scheme would give 10% additional subsidy to garment firms, besides the 5% interest subsidy extended to the textile industry.

The move is expected to give a fillip to the expansion plans of garment companies, currently on hold due to rising costs in the sector. The rupee, which has appreciated by about 10% since December 2006, has already eroded profit realisations by 6.5% and is likely to lead to a loss of 6 lakh jobs in the current fiscal.

“The garment industry has long been neglected by the government and this initiative to provide capital subsidy comes as a big relief to an industry currently plagued by an appreciating rupee and rising costs,” Orient Craft chairman Sudhir Dhingra said.

With the garment industry expected to grow at 16% by 2012 from the current 10%, the government is making sure policies are focused on the sector. Prime Minister Manmohan Singh had recently called for specific policies to encourage high priority in plan allocations for the textile and garment sector.

“The modified Tufs, to be implemented by August, will reduce the subsidy component in areas that no longer need it, such as spinning, and divert it to key sectors such as garments which is a finished goods industry,” a government official said. The spinning sector, which has availed about 60% of the total disbursement under the scheme so far, will see a reduction in subsidy from 5% to 3% under the revised scheme.

While second hand machinery will not be eligible for the scheme anymore, the government may relax the condition for weaving, a sector that is currently facing a dearth of new machinery.

“Second hand machinery up to 10 years old may continue to get benefits under the modified scheme,” the official said.
Tufs was introduced in 1999 to encourage the textile industry to invest in state-of-the-art machinery to modernise production.