Mumbai, December 04, 2024: On Monday, December 2, 2024, the Group of Ministers (GoM) on Rate Rationalization, chaired by Bihar Deputy Chief Minister Samrat Chaudhary, unveiled important adjustments to the GST rates for the apparel industry. The new guidelines state that ready-made clothing priced under ₹1,500 would still be subject to 5% GST, while clothing priced between ₹1,500 and ₹10,000 will see a significant increase to 18%, and clothing priced beyond ₹10,000 will be subject to the highest slab of 28%. As a result, the Clothing Manufacturers Association of India (CMAI) has expressed grave worries regarding the possible difficulties these changes may present for the apparel sector, including the negative effects they may have on price, manufacturing, and consumer demand.
By pushing customers and businesses via unofficial channels, the planned increase in the GST rate runs the potential of seriously upending the legal retail industry. Legitimate retailers would suffer from this change, while dishonest vendors and illicit traders would profit. With the textile industry already under stress, one lakh jobs could be lost. SMEs in the spinning, weaving, and clothing industries often have low PAT margins of 1% to 3%; these trends may result in revenue losses and increased pressure on profitability.
Price-sensitive customers, particularly women, would face more difficulties as a result of this raise, which would increase price inflation. An economic loss could result from higher taxes on goods associated with festivals and celebrations, which will further slowdown already declining consumption. Weddings and other festivities hold great cultural value, but middle-class families will be severely impacted by the proposed raise as they will have to shoulder more financial strain. The proposed move runs the danger of decreasing overall industry compliance, hurting formalization efforts, and diminishing the tax base, despite the government’s goal of raising tax revenue. It would be more successful to concentrate on promoting compliance with reduced tax rates and enhanced enforcement instead.
“The proposed GST rate revisions pose a significant threat to the apparel industry as a whole, which is already facing challenges like drop in consumer demand, profit erosion, and working capital issues,” said Santosh Katariya, President of the Clothing Manufacturers Association of India (CMAI), who expressed his deep concern over the proposed rate revisions. Although the government’s decision to raise the 5% GST threshold from ₹1,000 to ₹1,500 is praiseworthy and would help the poorer segments, the middle class, which makes up a sizable chunk of the consumer base, is still disproportionately affected by these increases. If put into practice, it might result in the closure of MSME’s in our sector, further undermining a sector that is essential to job creation and economic expansion.
A consistent 5% GST rate was advantageous and provided a workable answer to these problems. It prevented any negative effects on exports, minimized disruptions, and guaranteed stability throughout the value chain. Furthermore, the current rate promoted economic growth and ease of doing business by supporting the industry without lowering GST collections. We implore the government to refrain from implementing a new tax system and to stop taking such regressive actions, as they would further disrupt companies that are already having difficulty expanding as a result of the poor consumer attitudes of the previous two years.
Speaking on this development, Rahul Mehta, Chief Mentor, Clothing Manufacturers Association of India (CMAI), stated, “The Apparel industry plays a crucial role in India’s economy, providing millions of jobs and contributing significantly to the nation’s growth. However, the sector is already struggling with weakened consumer demand and is actually in dire need of policy support to boost sales. Policies should be designed to nurture the industry, ensuring a balanced approach that fosters growth and stability. The Government must consult industry stakeholders to fully understand the implications and avoid further challenges before making decisions. The government’s commitment to ease of doing business should reflect in their actions, supporting with policies that drive growth, reduce obstacles, and help the industry to thrive.”
In light of these concerns, the Clothing Manufacturers Association of India (CMAI) urges the government to discard the proposed GST rate revisions. While the intent to streamline the tax structure is recognized, it is crucial that policy changes should only strengthen the Apparel industry’s growth and stability. The proposed tax hike on garments, especially those priced under ₹10,000, seems disproportionate when compared to the GST rate on genuinely high-value luxury products. For example, a ₹1.5 lakh high-end mobile phone is taxed at 18%, whereas a ₹10,000 ladies’ suit is proposed to be taxed at 28%. This discrepancy will lead to further instability in the sector.
A continuation of the existing GST rate provides the needed stability and protects jobs, enabling the sector to continue driving significant economic contributions. All the good work done by the Government in formalizing businesses with the current GST regime can be easily wiped out by increasing price point based higher taxes. CMAI advocates for a balanced approach that ensures long-term sustainability and benefits for all stakeholders.
