Proposed GST Hike: India’s apparel industry fears losing growth momentum

05 December 2024, Mumbai

Indian apparel industry is bracing for a potential turmoil as the Group of Ministers (GoM) proposes a significant hike in Goods and Services Tax (GST) on garments. While the government aims to boost revenue, experts warn this move could backfire, pushing consumers and businesses towards the informal sector, jeopardizing the industry's growth.

The proposed hike and concerns

Currently, garments priced up to Rs 1,000 attract a GSTof 5 per cent, 12% for higher than Rs 1,000. The GoM recommends maintaining the 5 per centrate for garments priced below Rs 1,500 but introducing a steep increase to 18 per cent for those priced between Rs 1,500 and 10,000. Garments above Rs 10,000 would fall under the highest slab of 28 per cent.

Table: Proposed GST rates

The proposed hike has worried the garment industry. The Retailers Association of India (RAI) warns could incentivize informal trade, undoing years of progress in formalizing the retail sector. Kumar Rajagopalan, CEO of RAI, states, "Increasing GST rates will hurt formal retail businesses and encourage unorganized markets to grow."

Meanwhile, the Clothing Manufacturers Association of India (CMAI) estimates potential job losses of one lakh in the textile industry alone. Small and medium enterprises (SMEs), already operating on thin margins, could face closures. Santosh Katariya, President of CMAI, emphasizes, "If implemented, it could lead to closures of MSMEs in our sector, further destabilizing an industry that plays a vital role in employment and economic growth."

Consumers too will be affected as higher prices will burden them, particularly women who manage household budgets. This could reduce demand and festive spending, crucial drivers of the Indian economy.Consider a small apparel manufacturer in Surat producing women's ethnic wear priced between Rs 3,000 and Rs 8,000. Currently, they pay 5 per cent GST. Under the new proposal, their GST liability would jump to 18 per cent. The increased cost could force them to either raise prices, potentially losing customers, or absorb the cost, squeezing their already thin margins.

Industry leaders also point out the disparity in GST rates between apparel and luxury goods. Rahul Mehta, Chief Mentor of CMAI, highlights, "A Rs 1.5 lakh high-end mobile phone is taxed at 18 per cent, whereas a RS 10,000 ladies' suit is proposed to be taxed at 28 per cent."

Both RAI and CMAI have urged the government to reconsider the hike. They advocate:

Lowering rates and improving compliance: This would expand the tax base without hurting consumption.

Focus on policy support: The industry needs policies that nurture growth and boost sales, not stifle them.

Consultation with stakeholders: The government must engage with industry representatives to understand the potential ramifications of the proposed changes.

The proposed GST hike on apparel has sparked a debate on its potential impact on the industry and the economy. While the government's intent to increase revenue is understandable, it is crucial to ensure that policy changes do not undermine the formal retail sector, stifle MSME growth, or burden consumers. A balanced approach that fosters both compliance and growth is essential for the long-term health of the apparel industry and the Indian economy.

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