The scheme is supposed to mobilise fresh investments of about Rs 95,000 crore in the textile and apparel sector by FY22 and create 3.5 million new jobs.

The government is planning a major revamp of its flagship incentive scheme for capital investments in the textile and garment sector to improve its performance and align its objectives with other recently-launched programmes, including the production-linked incentive (PLI) scheme and mega parks, official sources told FE.

While notifying the Amended Technology Upgradation Fund Scheme (ATUFS) in January 2016, the government had set aside an outlay of Rs 17,822 crore (Rs 12,671 crore for clearing pending claims under the scheme’s earlier avatars and Rs 5,151 crore for implementing the ATUFS) until FY22. The scheme is supposed to mobilise fresh investments of about Rs 95,000 crore in the textile and apparel sector by FY22 and create 3.5 million new jobs.

However, until FY21, it could incentivise projects worth only Rs 46,861 crore, while the subsidy disbursement stood at Rs 3,378 crore.

“So, instead of merely extending the ATUFS with the same structure, the government has decided to revamp it,” said a source.

The new scheme that is being worked out will focus on expeditious subsidy disbursement for large investments and better incentivise segments that have high employment potential, said one of the sources. The thrust on technical textiles and man-made fibre products could be raised, in sync with the recently-launched Rs 10,683-crore PLI scheme for these segments, he added.

Similarly, while subsidy up to Rs 5 crore is currently cleared within a short period (a week, in most cases), dole-out above this amount for big-ticket investments typically takes much longer. This process is expected to be expedited.

Industry sources said the ATUFS is set to miss the investment target by a wide margin, as cash-strapped, highly-leveraged companies in the labour-intensive sector had cut down on both technology upgrade and capacity expansion, even before the pandemic struck. However, given the current economic resurgence in key export markets like the US and the EU, large investments could flow in if the government plans meaningful interventions, they added.

The new scheme will likely be designed to help the fragmented textile and garment industry acquire scale and boost exports, and complement the PLI and the mega textile park schemes. It would also facilitate the upgrade of existing looms to better-technology ones, ensure quality in processing and curb fabrics imports by garment firms.

The TUFS, the earliest version of the ATUFS, was introduced in 1999 to make available funds to the textile industry for upgrading technology at existing units as well as for setting up new ones with state-of-the-art facilities. The idea was to improve their viability and competitiveness in both the domestic and export markets.

Under the extant scheme (ATUFS), garments and technical textiles firms are provided a 15% subsidy on capital investments, subject to a ceiling of Rs 30 crore for each investor. Remaining segments, such as weaving, processing, jute, silk and handlooms, get 10%, with a cap of Rs 20 crore.

Before the ATUFS was introduced, the various versions of the TUFS had attracted investments of more than Rs 2.71 lakh crore in about 16 years through FY15, according to an earlier official estimate. Subsidies of Rs 21,347 crore were disbursed under the scheme during this period and a lot of pending claims were settled later. The capital-intensive spinning industry has been the largest beneficiary of the TUFS, as most of the investments have taken place in this segment. Of course, with the change in the incentive structure under the ATUFS, spinning mills haven’t quite reaped the benefits in recent years. Large-scale capacity addition in spinning in earlier years also discouraged them from undertaking fresh expansion.