The notice by the Centre of increased GST rates for numerous textile and apparel goods beginning in January 2022 has come as a blow to micro, small, and medium-scale textile and garment companies, with industry associations claiming that the decision will raise consumer prices and fuel inflation.
Fixing the rate at 12% for textiles and garments in an industry where over 80% of the units are in the MSME category would only lead to increased pricing for the ordinary man, according to Sanjay K. Jain, Chairman of the Indian Chamber of Commerce’s Textiles Committee.
Mr. Jain stated that as a result of the announcement, the manufactured fiber (MMF) sector would suffer a 12% tax from fiber to garments, while the cotton sector would face a 5% tax on cotton and yarn and a 12% tax on textiles and garments.
“The industry and the market can withstand a 3% to 4% increase.” However, 7% is far too steep and abrupt. Most low-cost clothes are produced by MSME firms, which may suffer from a decline in demand. “In the long term, many unorganized sector companies may opt-out of the GST net,” he said.
While the notification, issued late Thursday, was based on the GST Council’s recommendations and thus not entirely unexpected, industry groups were disappointed that their representations to the government to maintain the status quo or bring the entire textile supply chain under the 5 percent rate had not been taken into account, Mr. Jain added.
According to Chief Mentor Rahul Mehta of the Clothing Manufacturers Association of India, the announcement was’ disappointing and disturbing. He noted that the sector had made many requests to the government in the previous two months not to modify the prices and continue to do so. The change would increase pricing for the end customer when raw material costs were already influencing prices.
While the chairman of the Southern India Mills Association, Ravi Sam, and the chairman of the Confederation of Indian Textile Industry, T. Rajkumar, welcomed the move to correct the inverted duty structure for the MMF sector, Mr. Sam stated that the government should not have changed the rates for the cotton sector.
According to K.E. Raghunathan, convenor of the Consortium of Indian Associations, the government seems to have used a carrot and stick strategy. While announcing a Production-Linked Incentive Scheme for the industry, it raised GST rates by 7%. “A masterstroke to penalize both the consumer and the company at the same time,” he observed.
They went on to say that the textile industry will almost certainly require more working capital immediately. According to industry estimates, the unorganized sector accounts for about 90% of fabric manufacturing. Increasing the tariff for textiles to 12% would hurt power loom and handloom weavers.