The Clothing Manufacturers Association of India has expressed deep disappointed over the government move to increase the GST on all fabrics and garments priced above ₹1,000 to 12 per cent from 5 per cent.
Inputs into the MMF fabric segment (fibre and yarn) attracts a GST rate of 18 per cent and 12 per cent, while the same on finished goods apparel is 5 per cent (for those priced less than ₹1,000) and 12 per cent (for above ₹1,000).
Addressing media after the GST Council meeting in Lucknow early this month, Finance Minister Nirmala Sitharaman said inverted duty structure in footwear and textiles sector was taken up in earlier meetings and it will be corrected from January after further discussions.
In order to correct an issue faced by a small section of the entire industry, the Council is considering to increase the prices of nearly 85 per cent of the final products to the consumers, said the Association.
CMAI recommends a flat 5 per cent GST across the entire value chain that will resolve the inverted duty structure and boost consumption, it added.
The domestic garment industry is still operating at 65 per cent of pre-Covid levels as retail, which is the lifeline of apparel manufacturing, was one of the first to shut down and last to re-open, it said.
The sharp increase in cost of raw materials such as yarn, fabric, fuel, packaging materials and transportation has already pushed up final product prices by 5-20 per cent.
The struggling industry, one of the largest employers, has cut employment by 20 per cent after scaling down and shutting operations due to the Covid pandemic impact.
The support provided by the government to MSMEs through emergency credit lines are being wound up and banks have started recalling these loans. In addition to the stress of repayment of these loans, MSMEs will now need additional working capital with the GST refunds now going to 12 per cent, said the association.