The Central Board of Indirect Taxes and Customs (CBIC) has notified an increase in GST rate from 5% to 12% on Fabrics, Apparel, and Footwear with effect from January 2022.
It has come as a blow to micro, small and medium enterprise (MSME) and clothing units, with industry groups expecting that it will push up prices for consumers and spur inflation.
As per Sanjay K. Jain, Chairman of the Textiles Committee of the Indian Chamber of Commerce, in an industry, where almost 80% of the units are in the MSME segment, fixing the rate at 12% for fabrics and garments will only lead to higher prices for the common man. The manmade fibre (MMF) sector would face a 12% rate from fibre to garments, while the cotton sector would have 5% tax on cotton and yarn and 12% for fabrics and garments.
“The industry and the market can absorb 3% to 4% hike. But 7% is too steep and sudden. It is the MSME units that make the low-cost garments mostly and these units may suffer from drop in demand. In the long run, many units in the unorganised sector may move out of the GST net,” he remarked.
Further, Clothing Manufacturers Association of India Chief Mentor Rahul Mehta said the notification was both, ‘disappointing and distressing’. The move would lead to higher prices for the end consumer at a time when high raw material costs had already impacted prices. The industry had made several representations to the government in the last two months to not change the rates and would continue to do so, he added.
Industry sources has observed that almost 90% of fabric production in the country was in the unorganised sector. Increasing the rate to 12% for fabrics would hit the power loom and handloom weavers. The textile sector was certain to require additional working capital now, they added.