Textile, clothing industry say hike in GST to have negative impact

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November 24, 2021 2:25 AM

The textile sector is certain to require additional working capital now and the final cost will be passed on to the consumer, sources said.

Industry sources observed that since almost 80% of fabric production in the country is in the unorganised sector, increasing the rate to 12% for fabrics will hit the powerloom and handloom weavers.Industry sources observed that since almost 80% of fabric production in the country is in the unorganised sector, increasing the rate to 12% for fabrics will hit the powerloom and handloom weavers.

The Centre’s notification to hike GST rates for several textile and apparel items from January 2022 has come as major blow to micro, small and medium-scale textile and clothing units, with industry groups asserting that the move will push up prices for consumers.

Industry sources observed that since almost 80% of fabric production in the country is in the unorganised sector, increasing the rate to 12% for fabrics will hit the powerloom and handloom weavers. The textile sector is certain to require additional working capital now and the final cost will be passed on to the consumer, sources said.

In a bid to address inverted tax structure in the man-made fibre (MMF) textile value chain, the ministry of textiles has notified the uniform goods and services tax (GST) rate at 12% on MMF, MMF yarn, MMF fabrics and apparel. Changed tax rates will come into effect from January 1, 2022. Prior to the change in tax structure, the GST on MMF, MMF yarn and MMF fabrics were 18%, 12% and 5%, respectively.

The decision is negative for both the consumer and the industry, said Sanjay K Jain, chairman of the Textiles Committee of the Indian Chamber of Commerce. He felt that while the industry and the market can absorb 3-4% hike, an increase of 7% is steep. “It is the MSME units that make the low-cost garments and these units may suffer from drop in demand. In the long run, many units in the unorganised sector may move out of the GST net,” he observed. This also means that the working capital requirements of these units will go up, he added.

Vinod Kumar Gupta, managing director of Dollar Industries, said that the notification on GST increase from 5% to 12% on all fabrics and garments below Rs 1,000 is indeed quite disappointing. “In fact, the proposed merger of existing 12% and 18% slabs to a single 15% or 16% window is a whopping increase by 300% in GST rates for the garments that are used by the lower income group of the society.

The market is likely to see a 15-20% price rise in garments soon since there is an unprecedented price increase of raw materials like yarn, packing materials and freight,” he pointed out.” It is unfortunate that those who buy clothes costing less than Rs 1,000 will be the most affected. On one hand the government is emphasising on Atmanirbhar Bharat and, on the other, these moves of levying high taxes is creating an atmosphere of uncertainty not only on the consumers but also on the manufacturers, he said.

Expressing disappointment at the notification, the Clothing Manufacturers Association of India (CMAI) president Rajesh Masand stated that CMAI, along with Associations and Trade Bodies from all over India have been vigorously representing to the government and GST Council not to implement this change. The changes effected will increase the prices of all fabrics and garments priced below Rs 1,000 from 5% to 12%.

“What will make the impact of this cost increase even more drastic, is the fact that the industry is reeling under a totally unprecedented price increase of its raw materials, especially yarn, packing material, and freight. The market is likely to see a 15-20% price increase in garments in the coming season even without the GST rate increase,” Masand said.

Industry body Retailers’ Association of India (RAI) has urged the finance minister to reconsider the GST Council’s recent decision. The industry body said the pandemic has already dealt a body blow to the apparel industry as prolonged lockdowns and weak consumer demand led to a decline in sales of clothing. Kumar Rajagopalan, CEO, Retailers’ Association of India (RAI), said, the GST hike is “not in anybody’s interest”.

“On the business side, it will add to the financial burden of an already-stressed sector, slow down its pace of recovery and affect working capital requirements especially in the case of MSME businesses which account for 90% of the industry. On the consumer side, it will lead to a rise in the prices of garments, thereby hurting consumption. On the government side, in the long run, it may lead to many unorganized businesses going out of the GST net,” he added.

While the Southern India Mills’ Association chairman Ravi Sam and Confederation of Indian Textile Industry chairman T Rajkumar welcomed the move to set right the inverted duty structure for the MMF sector, Sam said the government should not have changed the rates for the cotton sector. The Powerloom Development and Export Promotion Council (PDEXCIL) has urged the government of Tamil Nadu not to increase GST rates for any textile products as it would affect the industry.

In a letter to chief minister MK Stalin, its chairperson MA Ramaswamy said PDEXCIL catered to the needs of the powerloom industry that comprised of synthetic fabrics and man-made fibre (MMF). Increasing the GST rates will discourage the entire value chain and affect millions of workers as manufacturers would be forced to go for job cuts.

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