The GST council’s proposal to increase rates from 5% to 12% for garments across price categories will create greater stress on the already extended working capital requirements of the textile garment and hosiery industries, especially in the MSME sector, with the industry yet to tide over the crisis owing to Covid-19 induced pandemic.
At present garments above the price of Rs 1,000 are charged 12% GST. But the government has indicated charging 12% GST even on garments priced below Rs 1,000, currently charged at 5%.
The objective of such a change is an anomaly of an inverted duty structure faced by a small section of the industry, constituting not more than 15% of the total industry. The government is proposing to implement an inverted duty structure, which will affect nearly 80% of the final products to the consumers, Ashok Todi, president West Bengal Hosiery Association (WBHA) and chairman, Lux Industries said at a press conference.
Seven industry bodies representing hosiery, knitwear, fabric, textile traders & garment manufacturers expressed concern over the GST council’s recent announcement, though no formal communications have been made to them. The rate enhancement has been proposed to be made effective from January next year. Around 60-65% of the apparel retail stores, the lifeline of the apparel manufacturing industry, are still at pre-Covid levels.
KB Agarwala, president, Federation of Hosiery Manufacturers’ Association of India (FOHMA) and managing director Rupa & Co. said, the domestic hosiery and garment industry, traditionally extending long credit to buyers, has a high requirement of working capital. The pandemic compelled to extend even higher credits thereby requiring higher working capital. An increase in GST rates will lead to the closure of many units, 90% of which are in the MSME sector.
Banks had extended additional credit to MSMEs under the government-backed emergency credit line scheme but have started recalling their loans because of limited recovery. The hosiery, knitwear fabric and garment industries are already seeing a drop of 20% employment. The increase in GST rates will further affect at least 2 million job losses with the industry shrinking down, Agarwala added.