The government intends to rationalise various dole-out-based schemes; in light of that it plans to tweak the Technology Upgradation Fund Scheme (TUFS) in the textile sector and may end interest subsidy provided to mills against investments made by them.

The government may offer only capital subsidy or a similar form of support for investments under the new scheme, while details are being worked out in consultations with the Prime Minister’s Office (PMO). Under the TUFS, the government, at present provides interest subsidy up to 6 per cent, capital subsidy up to 30 per cent in the form of a grant and support under the margin money scheme (another form of capital subsidy). Budget allocation for subsidy payment has already been cut back to Rs 1,521 crores for 2015/16, compared with Rs 1,864 crores a year before.

The government wants to remove various interest subsidies across sectors to curb their distorting effect on the interest rate market. Replacing interest subsidy with other forms of support such as viability gap funding and upfront capital subsidy, aimed at ensuring better transmission of the monetary policy, is the government’s aim.

Farmers and exporters have been the biggest beneficiaries of interest subsidies so far. The government’s major interest subsidy outgo, including for subventions on short-term credit to farmers and export promotion, is budgeted at Rs 14,903.42 crores for 2015/16, compared to Rs 11,147.17 crores in 2014. However, this amount doesn’t include the subsidy payment under the TUFS.