The ministry is mulling reduction of the threshold limit between Rs 3 crore and Rs 5 crore from the present Rs 20 crore to help small and medium units upgrade and modernise, according to textile secretary Shyamal Ghosh.

Ghosh, however, said that the ministry was not in favour of lowering the threshold limit for spinning sector as the country is already loaded with excess capacity.

"Our entrepreneurs are still driven by herd mentality. Last year, we imported more than one million spindles despite the slump in exports following the southeast Asian crisis", he said.

The government does not want to encourage additional capacity in spinning for now, he added.

The EPCG scheme provides for machinery imports, both new and second hand, at zero or concessional duty if the value ofimports exceeded the threshold limit. It is mandatory for importers to meet the export obligations stipulated under the scheme.

A bulk of India's fabric and made-up exports come from small-scale sector and the lowering of threshold limit for weaving and processing would help push up textile exports, Ghosh said.

Already, the threshold limit for availing zero duty import for export production has been lowered from Rs 20 crore to Rs 1 crore for the garment sector.

The textile ministry is planning to link up imports of machineries under EPCG scheme with the proposed Technology Upgradation Fund (TUF) to bring in more transparency and accountability on utilising the funds, Ghosh said.

The technology upgradation fund for modernising textile units is expected to come into existence early next month and is being set up with an initial corpus of Rs 25,000 crore.

Textile units going for upgradation will be given funds at concessional interest rate, which might be five per cent lower than market rates, Ghoshsaid.

Meanwhile, Indian Cotton Mills' Federation (ICMF) has demanded that threshold limit for all textile machineries should be lowered to Rs 3 crore.

Ghosh, however, said government has to take into account the interest of all concerned as it involves domestic capital goods manufacturers also.