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Wednesday, Nov 03, 2004

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Projects eligible under TUFS — Minimum economic size norm for spinners eased

G. Gurumurthy

Coimbatore , Nov. 2

THE Inter-Ministerial Steering Committee (IMSC) on textile Technology Upgradation Fund Scheme (TUFS) has relaxed the spindleage norm guiding the minimum economic size (MES) for projects eligible for TUFS assistance.

The lowering of the MES for the spinning mills which was decided by the IMSC at its latest meeting held on October 15 will cover both the greenfield spinning projects and the existing spinning units going for capacity expansion under the cotton ring spinning system, according to an official communication from the office of the textile commissioner.

The diluted MES norm has brought down the minimum spindleage for the spinning units from the present 25,000 to 12,000 in the case of new investment and in respect of the existing ones, the minimum threshold has now been lowered to 8,000 spindles from 12,000.

But the crucial norm relaxation made available to the spinning sector which may dilute the seriousness among the spinners planning investment on forward integration in the textile chain is the IMSC's decision to do away with the stipulation that the stand-alone spinning units ) seeking TUFS assistance should also invest on downstream value addition manufacture if their TUFS proposals were to be accommodated. This decision would apply to both the new projects and existing units on capacity expansion whose project execution is already under implementation.

The relaxed MES norms have also enabled the existing garment units as well as the knitting and powerloom weaving units setting up their new spinning projects with minimum 8,000 spindle capacity plant for their captive use thereby integrating backward their manufacturing operations.

According to textile industry sources, the relaxation in the MES stipulation will pep up the investment morale for the stand-alone small-scale spinning enterprises in the cotton ring spinning system which have been clamouring for dilution of the spindleage norm to effectively take advantage of the TUFS. The decision to reduce the MES for stand-alone spinners is, these sources say, partly influenced by the anxiety among the TUFS administrators on the slow pace of the scheme utilisation.

However, sources connected with the organised textile mill sector are at the same time sceptical on the move to dilute the MES spindle norm for the spinners, more so the decision to do away with the stipulation on mandatory spend part of the additional capacity creation for downstream value addition manufacture.

The primary worry of the latter's viewpoint is that the dilution in the spindle capacity norm to be allowed will further worsen the already demand-supply mismatch seen in the cotton spinning sector due to excess yarn production in the market.

Another apprehension is that the new spinning capacity being created at low-cost investment will put the old spinning capacity created at higher investment/costly funds at a sharp disadvantage.

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