Clothing and footwear inflation at over 7-year high

Retail inflation for clothing and footwear segments surged to over a seven-year high to 7.94 per cent in November. Apparel and footwear players have expressed concerns over the impact on consumption with increase in raw material prices coupled with the new GST regime kicking-in for these sectors from January 1.

Clothing and footwear is one of the six groups in consumer price index and it has a combined weight of 7.36 per cent. It has been on the rise since May this year and in November, it reached the highest level after August 2014 when it had touched 8.04 per cent. The inflation is expected to flare up further as a notification by the Finance Ministry prescribes a uniform GST rate for the textile and footwear sector from January 1.

Tax rate on textile items of sale value not exceeding ₹1,000 per piece will be 12 per cent against 5 per cent. Similarly, tax rate on footwear products of sale value not exceeding ₹1,000 per pair has been increased to 12 per cent from 5 per cent. Also, tax rate on various raw materials used in manufacturing of textile articles have been rationalised. Accordingly, such inputs will be taxable at 12 per cent instead of multiple tax rates ranging from 5-18 per cent.

Impact on consumers

Lalit Agarwal, Managing Director of value retailer V-Mart, which sells apparel, footwear and home products, said: “I have not seen this kind of inflationary pressures in the past two decades in terms of commodities and raw material costs. We have had to hike prices by about 8-9 per cent compared to previous year due to these inflationary pressures. With the additional 7 per cent hike in GST, product prices will go up further and will impact consumer’s wallets.” He added that consumers may look at cutting back on spends or frequency of shopping for these products.

Industry associations such as the Clothing Manufacturers Association of India, Retailers Association of India and Confederation of All India Traders have sent various representations to the Centre to reconsider this decision. The textile industry associations also met the Finance Minister on Tuesday.

Due to the raw material price hike along with the GST hike, consumers could be staring at a 15-20 per cent increase in prices of apparel products by early next year, said Rahul Mehta, Chief Mentor, Clothing Manufacturers Association of India (CMAI). “The GST hike is being done on items that are priced below ₹1,000 and hence, the impact will be felt entirely by price-conscious consumers or consumers from poor socio-economic background. This will impact consumption. At the same time, this is expected to push smaller players to the unorganised segment. The hike in GST rate will adversely impact 85 per cent of the textile and apparel value chain but the challenge of inverted duty structure is faced only by 15 per cent of the industry value chain,” he added.

A senior executive with a footwear company said due to raw material cost pressures, industry players have had to increase prices by about 5-10 per cent across various categories and with the hike in GST, the overall price impact on footwear sector could range between 10-15 per cent in this fiscal year.

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