The planned changes to the GST rate on ready-made clothing have sparked worries from the Confederation of Indian Textile Industry (CITI), which has warned of the possible significant effects on employment, the textile sector, and the economy as a whole.
The suggested framework will maintain the 5% GST rate on clothing up to ₹1,500. The highest tax rate, 28%, will apply to clothing priced over ₹10,000, while goods priced between ₹1,500 and ₹10,000 will see a sharp increase to 18%.
Issues with GST in the MMF Sector
Additionally, CITI has called attention to the ongoing problem of an inverted duty structure (IDS) in the man-made fiber (MMF) sector, where different GST rates along the value chain restrict working capital and hinder expansion.
| Segment | Cotton | MMF |
| Fiber | 5% | 18% |
| Yarn | 5% | 12% |
| Fabrics (woven, knitted) | 5% | 5% |
| Garments* | 5% or 12% | 5% or 12% |
| Home Textiles & Made-ups* | 5% or 12% | 5% or 12% |
GST rate is 5% if the product value is <₹1,000, otherwise charged at 12%.
In order to alleviate the IDS problem in the MMF sector without affecting government revenue, CITI restated its earlier suggestions to lower the GST rates on raw materials like PTA and MEG from 18% to 12%. The projected increase, according to CITI, is expected to upend the official retail industry and push customers and companies onto unofficial and unregulated channels.
Job Losses and Sectoral Effects
Numerous employment in the textile industry, which is already struggling financially, could be lost, especially in small and medium-sized businesses (SMEs) that produce clothing, spin, and weave.
Price-sensitive consumers will be disproportionately impacted by the anticipated increase in price inflation brought on by the proposed GST hike. In order to promote growth in the textile industry and maintain consumer affordability, CITI has encouraged the government to reevaluate the planned increase in the GST rate and take a more balanced approach.
“At a time when demand is already under strain, higher taxes on clothing associated with festivals and celebrations will decrease consumption. Millions of people in India depend on the textile industry for their livelihoods, thus this could have a knock-on effect on the economy. Policies should support its expansion rather than obstruct it, according to CITI Chairman Sh. Rakesh Mehra.
