New Delhi: A revival package for the textile industry that the government announced on Sunday will ease capital flows but not spur production and employment growth, industry representatives said.

The Union government has allocated some Rs1,400 crore to clear a backlog in its Technology Upgradation Fund Scheme (Tufs), aimed at modernizing textile machinery.

No relief: A file photo of workers at a textile mill in Mumbai. Santosh Verma / Bloomberg

The recent allocation, according to the Confederation of the Indian Textile Industry (Citi), an industry lobby with at least 500 associations as members, will help meet only pending dues for the first two quarters of this financial year that began in April.

“The money due to the industry has been provided finally, but it’s not a relief," said B.K. Patodia, chairman and managing director of the Rs400 crore GTN Group, one of the country’s big cotton yarn exporters.

The $52 billion (Rs2.5 trillion) industry has been impacted on slowing global consumption and cash flow problems at home. Small and medium enterprises comprise 80% of the sector.

Patodia said if the government wants to restore confidence, it would need to reinstate the interest subsidy, also known as subvention, to the pre-October level of 4%.

The subsidy scheme, meant for pre- and post-shipment credit, ended on 1 October. The latest package has, however, restored it by half the original rate at 2%.

As a direct fallout of lower production and cancelled export orders, the textile industry—that employs some 35 million, the largest after agriculture—has hugely laid off temporary workers. Citi estimates such job losses number between 700,000 and 500,000.

The retrenchment figure, said Citi director general D.K Nair, has been calculated on lower output forecasts for the year. Production is likely to fall by 5% this year, he said.

The industry association has been demanding more time to repay loans and extending the repayment period to 12 years from the current 10 for Tufs loans. “The government measures on Tufs have come too late. It should have been released earlier," Nair said.