The Center’s notification of higher GST rates for several textile and clothing items from January 2022 is a blow to micro, small and medium-sized textile and clothing units, with industry groups claiming the move will drive up prices for consumers and stimulate inflation.
In an industry, where nearly 80% of the units belong to the MSME segment, setting the rate at 12% for fabrics and clothing will only increase prices for the common man, said Sanjay K. Jain, Chairman of the Textiles Committee of the Indian Chamber of Commerce.
Mr Jain said that with the notification, the synthetic fiber sector (MMF) would face a 12% rate from fiber to clothing, while the cotton sector would face a 5% tax on cotton and cotton. thread and 12% on fabrics and clothing.
âThe industry and the market can absorb an increase of 3 to 4%. But 7% is too steep and sudden. It is the MSME units that mainly manufacture low-cost clothing and these units may suffer from a drop in demand. In the long run, many units in the unorganized sector could come out of the GST net, âhe noted.
While the notification, released late Thursday, was based on recommendations from the GST Council and therefore came as no complete surprise, industry groups were disappointed that their representations to the government to maintain the status quo or bring back the whole textile supply chain below the 5% rate had not been taken into account, Jain added.
Garment Manufacturers Association of India’s chief mentor Rahul Mehta said the notification was both “disappointing and distressing.” This decision would lead to higher prices for the end consumer at a time when high raw material costs had already had an impact on prices. The industry had made several representations to the government over the past two months not to change tariffs and would continue to do so, he added.
While the president of the Southern India Mills’ Association, Ravi Sam, and the president of the Confederation of Indian Textile Industry, T. Rajkumar, welcomed the decision to re-establish the reverse tariff structure for the MMF sector, Mr. Sam said the government should not have changed the rates for cotton. sector.
KE Raghunathan, chairman of the Consortium of Indian Associations, said the government appeared to have taken a carrot and stick approach. While announcing a production-related incentive program for the sector, he raised GST rates by 7%. “A masterstroke to penalize both the consumer and the manufacturer at once,” he remarks.
Industry sources observed that nearly 90% of fabric production in the country was in the unorganized sector. Raising the rate to 12% for fabrics would hit weavers in power looms and hand looms. The textile sector will certainly need additional working capital now, they added.