Impact on Textile Industry due to Correction in Inverted duty Structure

Currently, there are two tax slabs – 5% for bills below ₹999 and 12% for bills above that.

GST Council decided to GST rate changes from January 2022 in order to correct inverted duty structure in Footwear and Textile Sector. All footwear, irrespective of prices will attract Goods & Services Tax (GST) at 12 per cent while barring cotton, all textile products including readymade garments will have GST at the rate of 12 per cent.

Impact Analysis:

• If they bring everything to 12 per cent to correct the inverted duty structure, the common man would have to pay 7 per cent extra. That will lead to a one-shot increase of 7 percent in prices.
• If the GST rate is increased to 12 per cent, the industry also expects a rise in working capital requirement especially for the MSME textile manufacturers.
• The moment the duty on garments below Rs 1,000 a piece increases from 5 per cent to 12 per cent, it would be detrimental to the industry. Unaccounted business will grow in a big way.
• COVID-19: The industry, one of the largest employers, is one of the worst-hit by the pandemic. With no social gatherings and people working from home, sales have dropped by over 50%. People also do not have spending capacity. So, there is no space of increase in prices.
• The demand in the domestic market has fallen steeply and it is in this sector that there have been the most closures and job losses. In such a situation, hiking GST to 12% would lead to a further fall in demand and will eventually hit workers. It will only mean more closures, loss of jobs and salary cuts.
• Garment prices have already shot up 20 per cent in the last one year because of the increase in the prices of cotton and other fibres. A further increase in rates may severely impact small garment manufacturers.
• Increase in women Job losses as more percentage of women employed in garment sector. A recent study by the Garment and Textiles Workers’ Union (GATWU) estimated that at least 60 garment factories shut down and nearly 40,000, mostly women, lost jobs, in Bengaluru alone since the pandemic.