On December 2, 2024, the Group of Ministers (GoM) on Rate Rationalization, chaired by Bihar Deputy Chief Minister Samrat Chaudhary, proposed significant changes to the GST rates for the apparel industry. The new guidelines state that ready-made clothing priced under ₹1,500 will continue to attract a 5% GST, while clothing priced between ₹1,500 and ₹10,000 will see a substantial increase to 18%. Clothing priced above ₹10,000 will be subject to the highest GST slab of 28%. The Clothing Manufacturers Association of India (CMAI) has expressed serious concerns about the potential negative impact these changes could have on the apparel sector, particularly in terms of pricing, manufacturing, and consumer demand.
One of the primary concerns raised by the CMAI is the risk of pushing consumers and businesses toward informal or illegal channels. This shift could destabilize the legal retail industry, with legitimate retailers suffering losses, while illicit vendors and traders stand to benefit. Furthermore, the textile sector, already under significant stress, could see the loss of up to 100,000 jobs, particularly in small and medium-sized enterprises (SMEs) that operate with low profit margins of just 1-3%. The handloom industry, which employs over 2 million weavers, could lose up to 25% of its income, while the wool industry, employing around 1.2 million people in the organized sector and another 2 million in related industries, could also face severe setbacks.
In addition, the GST hike could place a financial burden on price-sensitive consumers, particularly women, who would face higher prices on clothing. This would be particularly damaging during festive seasons and weddings, when apparel purchases are essential, but middle-class families would struggle with the increased costs. With consumption already declining, the proposed GST increase could exacerbate inflation, further slowing down demand. The overall result could be a negative economic impact, especially for the middle class, which is already facing financial strain.
CMAI President Santosh Katariya expressed deep concern over the proposed GST rate hikes, emphasizing that they could lead to the closure of many Micro, Small, and Medium Enterprises (MSMEs) in the sector, undermining job creation and economic growth. While the government’s decision to raise the 5% GST threshold from ₹1,000 to ₹1,500 is seen as beneficial for lower-income segments, the middle class, which forms a significant portion of the consumer base, would still be disproportionately affected by the increases. Katariya also noted that the consistent 5% GST rate had previously provided stability and minimized disruptions in the industry, supporting both exports and growth while maintaining tax collections.
CMAI Chief Mentor Rahul Mehta further stressed that the apparel industry is vital to India’s economy, contributing millions of jobs and significant economic growth. However, the sector is already grappling with declining consumer demand and urgently needs policy support to boost sales. Mehta called on the government to consult with industry stakeholders before making decisions, to fully understand the consequences and avoid adding to the industry’s difficulties. He urged the government to adopt policies that promote stability, reduce barriers, and encourage growth in the sector.
The CMAI also pointed out the disproportionate tax rates between high-value luxury goods and everyday apparel. For example, a high-end mobile phone priced at ₹1.5 lakh is taxed at 18%, while a ₹10,000 dress would face a 28% tax. This disparity could lead to further instability in the industry and push more consumers towards informal markets.
In light of these concerns, the CMAI has called on the government to reconsider the proposed GST rate changes. The current 5% GST rate on clothing under ₹1,500 offers the stability the industry needs, supports job preservation, and contributes to overall economic growth. Raising taxes on affordable clothing could undo the positive effects of GST formalization, harming both businesses and consumers. The CMAI advocates for a more balanced approach that fosters long-term sustainability and benefits all stakeholders, including businesses, workers, and consumers.
