TECHNOLOGY UPGRADATION FUND SCHEME
FOR TEXTILE AND JUTE INDUSTRIES

Foreword

Export-Import Bank of India, set up in 1982, for the purpose of financing, facilitating and promoting foreign trade of India, is the principal financial institution in the country for coordinating working of institutions engaged in financing exports and imports. As textiles sector accounts for about 1/5th of the total industrial production contributing to nearly 1/3rd of India's exports and provides employment to millions, Exim Bank has always laid especial emphasis to this sector in providing credit.

Approximately three-quarters of Indian textile exports are destined to countries, which imposes restrictions under Multi-Fibre Agreement(MFA). As regards the utilization level of Indian exporters of quotas imposed by MFA countries, data indicates that with few exceptions, Indian exporters have fully utilized their quota levels in most of the countries with such restrictions. Thus, there is little doubt that with the phasing out of MFA (by 2005), there would be enormous potential for expansion of Indian exports. Besides, Indian textile manufacturers have so far concentrated on low end of the export market. Despite enjoying significant cost advantages, the industry has not invested much on technology and modern equipment. In order to capitalize on the opportunity arising out of phasing out of MFA and to move up the value chain, the industry has to invest significant amounts on modern technology and modernization and upgradation of existing manufacturing facilities.

At this critical juncture, the Technology Upgradation Fund(TUFS) introduced by the Government of India, Ministry of Textiles with effect from April 1, 1999 aims at providing the much needed impetus to the textile industry and consequently make Indian textile exports more competitive in the international markets. The main feature of the TUF Scheme would be a five percent reimbursement on the interest actually charged by the identified financial institutions on the sanctioned projects. Exim Bank is a Primary Lending Institution under TUFS. For the textile industry, cotton ginning and pressing sector and jute sector, Exim Bank will appraise loan proposals under TUFS and work with the nodal agencies nominated by the Govt. viz. IDBI, IFCI and SIDBI in order to pass on the benefit of interest reimbursement to its customers availing loans under TUFS from Exim Bank. Exim Bank has been co-opted as a member of the Inter Ministerial Steering Committee constituted under the Chairmanship of the Secretary, Ministry of Textiles, Government of India for monitoring TUFS. As a co-opted financial institution, Exim Bank looks forward to extending this facility to the maximum number of eligible exporters, as part of its unending efforts to give a boost to India's exports.

The Technology Upgradation Fund Scheme

The Indian Textile Industry occupies a unique position in the Indian economy in terms of its contribution to industrial production, employment and exports. In spite of a strong fibre and production base, for certain historical reasons, this industry suffers from severe technological obsolescence and lack of economies of scale. While relatively high cost of state-of-the-art technologies and structural anomalies in the industry have been major contributory factors, perhaps the singlemost important factor inhibiting technology upgradation has been the relatively high cost of capital, even in real terms, in India, especially for an industry usually squeezed for margins.

In light of the foregoing, it has been felt necessary to make operational a focussed and time bound Technology Upgradation Fund Scheme (TUFS) which would provide a focal point for modernisation efforts through technology upgradation in the industry.

Definition of Technology Upgradation

Technology upgradation would ordinarily mean induction of state-of-the-art or near-state-of-the-art technology. But in the widely varying mosaic of technology in the Indian textile industry, even a significant step up from the present technology level to a substantially higher one for such trailing segments would be essential. Accordingly, technology levels are benchmarked in terms of specified machinery for each sector of the textile industry. Machinery with technology levels lower than that specified will not be permitted for funding under the TUF Scheme.

Scope of the Scheme

The following would be covered under the TUF Scheme:

  1. Cotton ginning and pressing
  2. Textile industry covering :
    • Silk reeling and twisting
    • Wool scouring and combing
    • Synthetic filament yarn texturising, crimping and twisting.
    • Spinning
    • Viscose Filament Yarn.
    • Weaving, knitting including non-wovens, fabric embroidery and technical textiles.
    • Garment / made-up manufacturing.
    • Processing of fibres, yarns, fabrics, garments and made-ups.
  3. Jute industry
General Eligibility Conditions

Type of Units

  1. Existing unit with or without expansion and new units.
  2. Existing units can modernise and/or expand with state-of-the-art technology.
  3. New units must set up their entire facilities only with the appropriate eligible technology.

Type of Textile Machinery Eligible

  1. Under the TUF Scheme, generally only new machinery will be permitted.

  2. However, in case of the following machinery with a minimum residual life of 10 years, import of second hand machinery by the eligible applicant unit will be permitted subject to maximum expired life (vintage) of 5 years as reckoned from the year of manufacture
    • Projectile shuttleless loom
    • Machinery for jute softening and carding, drawing, spinning and weaving.
    • Autoconer
    • Rapier shuttleless loom
    • Worsted Card
    • High speed inter-setting/Gill box/Chain Grills/Rotary Grills/Vertical Grill Box.
    • Drawing Set /Roving Frames/Rubbing Frame for worsted system.
    • Ring Frames with siro spinning attachment with or without auto doffers for worsted system.

  3. A certificate certifying the vintage and residual life of the imported second hand machinery must be furnished to the lending agency at the appropriate time as determined by the lending agency. Any of the agencies specified in Appendix-32A of the Handbook of Procedures (Volume 1) of Exim Policy 1997-2002 (as amended from time to time) can give such a certificate. Such a certificate is compulsory for any import of eligible second hand machinery under this scheme, irrespective of the value of such import. A certificate from the textile Commissioner will also be necessary to the effect that the equipment is not indigenously available.

  4. Balancing equipment or equipment required for de-bottlenecking the production process would also be eligible for funding under the TUFS.

  5. Waste reduction equipment or devices will be eligible for funding under the TUFS.

  6. Eligibility of any other textile machinery equal to or higher than the benchmarked technology not listed in the annexures or developed in the course of the operation of TUFS will be suo motu or on reference, specifically determined by the Technical Advisory Committee to be constituted by the Government.

  7. The size of the technologically upgraded facilities of an existing unit or size of the new unit must be of a minimum economic size.

Other Investments Eligible

  1. The following investments will also be eligible to the extent necessary for the plant and equipment to be installed for Technology Upgradation and the total of such investments will not normally exceed 25% of the total investment in such plant and machinery.

    1. Land and factory building including renovation of factory building and electrical installations ;
    2. Energy saving devices ;
    3. Effluent Treatment Plant ;
    4. Water Treatment Plant for captive industrial use ;
    5. Captive Power Generation.
    6. Preliminary and Pre-operative expenses
    7. Margin money for working capital
    8. Contingency provisions upto 5% of the eligible plant and machinery.

  2. Investment in the installation of the following facilities including necessary equipment:-
    1. In-house R&D including designs studio ;
    2. Information Technology including ERP;
    3. Total quality Management including adoption of appropriate ISO/BIS standards.

  3. Investment in the acquisition of technical know-how

Lending in excess of the limit prescribed above in respect of these items will attract the normal lending rates.

Loans under the Scheme

  1. Under the TUFS, loans will be provided subject to the terms and conditions given below :
    1. Duration of the Scheme: The scheme will be in operation for the period of 5 years from 01-04-1999 to 31-03-2004. Loans sanctioned by the lending agency till the last date of the duration of the scheme period will be eligible under the scheme and the reimbursement would continue to be available till the same is repaid as per the normal lending period of the Nodal Agency.
    2. Amount of Loan: The assistance will be need-based. There will be no maximum or minimum limit for individual loans.
    3. Promoters' Contribution: To be decided by the lending agency on the basis of its existing normal norms.
    4. Rate of Interest :
      • Rupee Loan: Effective rate of interest charged to the concerned borrower will be 5 percentage points lower than the prevailing commercial rates of interest charged by the Financial Institutions and Banks concerned; the Ministry of Textiles will reimburse the 5 percentage points under the scheme.
      • Foreign Currency Loan: As applicable for normal foreign currency loan. However cover for exchange rate fluctuation not exceeding 5% p.a. would be provided under the scheme.
      • Period of Interest Reimbursement :
        a) Interest reimbursement of 5% and/or cover for exchange fluctuation upto 5% p.a. will be available during the period of loan as specified in the Letter of Intent or as may be specified in the loan document. In case of subsequent extension of the repayment period, no reimbursement towards interest and/or exchange fluctuation will be available for the extended period.
        b) If an account becomes a non-performing asset (NPA), the interest reimbursement would not be available. The interest reimbursement will be available from the date of coming out of the NPA category. In default-free rescheduled cases, reimbursement will be as per the original repayment schedule.

    5. Other conditions, viz., period of loan, security, conversion option, Debt-Equity Ratio etc.: Eligible units will be of minimum economic size. Other conditions will be such as determined by the lending agency as per its existing normal norms.

    Major Terms of Exim Bank's Finance under TUFS.

    Amount of loan:
    The assistance will be need-based subject to the attainment of minimum economic size.

    Promoters' Contribution:
    Minimum of 20% of the cost of the project. May be relaxed under Production Equipment Finance Programme.

    Rate of Interest:

    Debt Equity Ratio
    Not to exceed 2:1 for the company/firm/project as a whole.

    Security
    Exclusive charge over assets covered under the Scheme. First/second charge on existing fixed assets and other collateral security and personal/corporate guarantee(s) as may be required.

    Period of Repayment
    Not exceeding 5 to 7 years, including moratorium upto 2 years, in case of existing or new projects respectively.

    Upfront Fee
    1% of the loan amount (non refundable).

    Nodal Agencies

    1. The Nodal Agencies under the scheme for different segments are as follows:

    Segments Nodal Agencies
    Textile Industry (excluding SSI sector) IDBI
    SSI Textile Sectors SIDBI
    Cotton Ginning &Pressing Sector SIDBI
    Jute Industry IFCI

    Frequently Asked Questions

    Q1. Who is responsible for disbursement of interest reimbursement of 5% per p.a.?

    Ans. Ministry of Textiles, Government of India, will disburse to the three Nodal Agencies (NA), viz. IDBI, IFCI, SIDBI, who in turn will disburse to the primary lending institutions (PLIs) i.e. banks/FIs who have financed eligible projects.

    Q2. Who determines the eligibility of a loan proposal under TUFS ?

    Ans. The NAs will determine the conformity of a proposal to eligibility norms of TUFS as per the guidelines given in the scheme notified by GOI. In the event of Exim Bank financing the proposal as a sole lender, Exim will need to examine the eligibility. In case of doubt regarding the eligibility of certain machinery, a reference would be made to a Technical Advisory Committee (TAC) being constituted by the MoT, which would meet periodically. The TAC is proposed to comprise besides representatives of GOI-MoT, MoI, MoF, the three NAs, technical experts and representatives of the industry.

    Q3. What is the procedure for disbursement of interest reimbursement?

    Ans. This is yet to be decided. MOT will issue clarification shortly. Two alternatives are under discussion:

    1. The borrower company pays interest at the normal interest rates and is reimbursed by the NA through the PLI (where applicable) on a half yearly/quarterly basis on receipt of funds from MoT.
    2. MoT places in advance funds with the NAs by way of interest bearing deposit. The interest reimbursement is paid by the NAs out of these funds to the borrowers.

    Q4. Apart from Plant and Machinery, will land and building, technical know-how fees, preliminary and pre-operative expenditure, margin money for working capital be eligible for interest reimbursement?

    Ans. Investments in assets other than plant and machinery which are eligible to be included in the project at concessional interest rates are land & building, effluent treatment plant, water treatment plant, captive power generation, energy saving device, preliminary and pre-operative expenses, margin money for working capital, contingency upto 5% of the plant and machinery subject to the aggregate value not normally exceeding 25% of the total investment in plant and machinery. Marginal increase over 25% will be permitted. Loans against investments above this limit will attract normal lending rates.

    Q5. If a loan under TUFS is rescheduled, will it be eligible for interest reimbursement for the rescheduled period?

    Ans. If a loan is rephased due to project implementation and the asset is classified as standard, interest reimbursement would be available for the refixed period. However in case of reschedulement after the company has gone into commercial production, interest reimbursement will not be available.

    Q6. Can Captive Power Plants (CPPs) by textile units be covered under TUFS?

    Ans. CPPs can be covered under the 25% limit for non-plant and machinery. However as this limit may be inadequate to cover CPPs in addition to other items, and as CPPs reduce power costs and enhance international competitiveness, MoT will examine possible relaxation.

    Q7. Are second hand machinery eligible under TUFS?

    Ans. The following second hand machinery for jute and textile sector would be eligible under TUFS:

    Q8. How will interest reimbursement be available in foreign currency loans (FCL)

    Ans. In FCL, the incentive will be available by way of cover for exchange rate fluctuation not exceeding 5% p.a. Operational modalities will be advised by the NAs.

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