The textile industry, which has been facing cash crunch because of a sharp dip in export orders, is yet to receive dues worth Rs 2,000 crore (Rs 20 billion) from the government under an interest subsidy scheme that encourages upgrade of technology.

Under the first stimulus package in December last year, the government had provided Rs 1,400 crore (Rs 14 billion) for the Technology Upgradation Fund Scheme. The amount, the industry said, was due to them anyway. Under TUFS, the industry gets reimbursements while repaying loans.

A senior textile ministry official said Rs 1,337 crore (Rs 13.37 billion) had been released to the industry. Industry executives said the amount would help clear the backlog only till June 2008.

In fact, Rs 300 crore (Rs 3 billion) would still be pending for June 2008, said DK Nair, secretary general of the Confederation of Indian Textile Industry. Another backlog of about Rs 1,800 crore (Rs 18 billion) from July 2008 to March 2009 would still be unpaid, added Nair.

Since more than 50 per cent of the country's textile production in exported, global economic problems have had a greater impact on the sector. The industry needs funds to tide over the present crisis, which has put it in a tight spot because demand in major export destinations has dipped to an all-time low.

"In such a scenario, TUFS claims are needed badly, but the government takes long in releasing the funds," said VS Velayutham, chairman of the Cotton Textiles Export Promotion Council. "Also, the funds released are in multiple small tranches, which does not serve the purpose," he added.

The scheme was launched in 1999 to make the industry more competitive. Under the scheme, the industry, while repaying loans taken from banks, gets reimbursements. The industry has seen a lot of activity under TUFS over the past three years.

"We were expecting that the government will allocate funds for TUFS in the Interim Budget. However, it didn't happen," said Velayutham, adding that it would probably happen after the new government takes over.

The scheme was introduced in 1999 and modified in 2007. It provides interest reimbursement on spinning machinery at the rate of 4 per cent. However, the remaining sub-sectors covered by the scheme get interest reimbursement at 5 per cent.

"The next allotment would depend on availability of funds from the finance ministry," said a senior official of the textile ministry. He said the Rs 1,337 crore released was a substantial amount, though the textile ministry had sent claims for over Rs 1,400 crore.

"The government has ensured that a one-year backlog remains, which is why it releases funds in parts," said Nair.

Coimbatore-based Rs 450-crore (Rs 4.5 billion) integrated textile and apparel company, KPR Mill, has about Rs 25 crore dues under TUFS. "So far, we have received about Rs 10 crore from different banks, but we don't know when we will get the rest," said managing director P Nataraj.

Punjab-based Abhishek Industries [Get Quote] has received only about Rs 8 crore (Rs 80 million) of its total dues of Rs 20 crore (Rs 200 million). "Things are still bad and we need liquidity," said Rajeev Gupta, chief executive of Abhishek Industries.

Since TUFS is demand-driven, it became popular in the wake of the dismantling of the multi-fibre agreement regime in 2004. It helped create economies of scale and increased investments in this sector.

Powerloom units have an additional option to avail of 20 per cent margin money subsidy under TUFS in lieu of 5 per cent interest reimbursement on investment in specified machinery.

The scheme also provides for 25 per cent capital subsidy on purchase of new machinery and equipment for pre- and post-loom operations, handlooms/upgrade of handlooms as well as testing and quality control equipment for handloom production units.

Specified processing machinery, garmenting machinery and machinery required in manufacture of technical textiles get 5 per cent interest reimbursement plus 10 per cent capital subsidy.