The move by the textile ministry to suspend the sanction of loans under the Technology Upgradation Fund (TUF) scheme has come under strong criticism from Indian textile companies.

‘‘This is a retrograde step and one that will considerably harm the sector,’’ Apparel Export Promotion Council chairman Vijay Agarwal said.

The TUF scheme which was launched by the government in 1999 provides a 5 per cent interest subsidy on capex for modernisation and expansion across the textile value chain, with a repayment period of 10 years. The government had set up a corpus of Rs 25,000 crore for the fund.

The scheme was available till March 2007. However, in a surprising move, the ministry issued a circular on July 7 asking all nodal agencies and banks to suspend the sanction of fresh loans under TUF.

Officials attribute the move to a growing cash crunch which had made the finance ministry unable to process requests for additional funds made by the textile ministry. The current requirement of funds under the TUF scheme is Rs 1,515 crore, while the budget estimated for 2006-07 is Rs 535 crore.

‘‘The major problem that Indian textile companies faced in expanding was the high cost of funds this scheme provided us with considerable relief as we got access to capital at a lower cost. This move will certainly affect Indian companies ability to take advantage of the post quota regime,’’ Eskay Knit India Ltd’s chairman Navin Kumar Tayal said.

Industry watchers also feel that the industry would need around Rs 30,000 crore investment in the next few years for it to reach its export target of

... contd.