October , 2017
Revised GST provides relief to Indian textile sector
17:32 pm

Ankita Chakraborty

The Indian Prime Minister, Narendra Modi while inaugurating the Global Textile and Handicrafts Event, Textiles India, 2017, in April stated, “Indian textiles represent the rich cultural diversity of the country.” 

Citing the example of poet Kabir, Modi said, “Kabir used to weave cloth and dye it and was known to look at life’s truth through his work and expressed the same through his couplets. Clothing has close links to our cultural diversity and many places and cities in India are well-known for their textiles. Be it silk from Kanchipuram, Varanasi and Assam or pashmina from Kashmir, muslin from Bengal, chikan work from Lucknow, handwoven ikkat work from Odisha and Telengana, Patan’s Patola from Gujarat or shawls from the Kutch region - for centuries traditional textiles have given identity to these regions. You will never find this diversity in any other nation.” He added that the textile industry has been among the oldest industries contributing to India’s economy and has immense potential for growth.

Sectoral overview

The labour intensive industry can be broadly sub-divided into the organised and unorganised markets. While the organised sector consists of spinning and the mordernised apparel and garments segment, the unorganised sector includes handloom, handicrafts and sericulture, which are operated through traditional tools and methods.

According to the India Brand Equity Forum (IBEF), the textiles sector is one of the largest contributors to India’s exports, accounting for around 15% of India’s exports. The textile industry employs about 51 million people directly and 68 million people indirectly. India’s overall textile exports during FY 2015-16 stood at $40 billion. Considered to be one of the most vibrant of Indian industries, the Indian textile industry entails a largely diversified array of production activities. The power looms and the hosiery and knitting sectors form the largest component of the textiles sector. The close association of the sector with the rural economy, in terms of sourcing raw materials, adds to its uniqueness.  The IBEF also reports that the Indian textiles industry is currently estimated at around $120 billion and is expected to reach $230 billion by 2020. The industry contributes approximately 4% to India’s Gross Domestic Product (GDP), and around 14% of the overall Index of Industrial Production (IIP).

Major manufacturing hubs

Tirupur: Tirupur has emerged as a prominent garment manufacturing hub in India. The knitwear capital of India contributes about 50% of the total garment production of the country. Tirupur supplies about Rs.7,000 crore worth of garments for domestic consumption, which is half of the total value of the knitwear production in India. According to a recent study by the Sripuram Trust, Tirupur has about 800 garment manufacturing and exporting firms and 1,200 merchant exporters. Of them, 300 garment manufacturing firms are producing garments for the domestic market. Additionally, it has 425 dyeing units and about 3,085 supporting units including finishing, embellishment, compacting and raising units. The textile industry in Tirupur employs about five lakh workers directly. The city is getting advantages related to favourable yarn price, market demand and foreign currency values.

Madurai: There are over 9,200 weavers in the Madurai district. It produces about 95% of woven and 5% of knitted garments. The district’s textile industry comprises over 3,000 units and employs more than 50,000 people and has an annual turnover of Rs.1,500-2,000 crore. According to a CII report, the manufacturing hub has witnessed a steady growth of 10-20% per year. About 20% of the output is exported.

Ludhiana: Ludhiana is one of the leaders in textile industry. It holds the traditional strength in flat knit apparel. It has specialisation in T-shirts and sweaters of both woollen and cotton blends.

Gujarat: Gujarat has an established textile sector with more than 1500 medium and large textile units. Gujarat has the highest number of medium and large textile processing houses and is home to more than 50% of India’s processing machinery manufacturers and 90% of weaving machinery manufacturers. At present, the major clusters of processing units are Mumbai, Surat, Ahmedabad, Delhi, Ludhiana, Amritsar and Tirupur.

Impact of GST

Under the new taxation regime, the revenue neutral rate for the readymade garment industry has escalated. The GST tax slab for readymade garments is 12%, which was lower in the previous taxation system. The exemptions and abatements, which were present in excise and VAT for the fabric manufacturers are no longer available. 18% tax will be added on synthetic and other manmade fibres while other natural fibres (except silk and jute) will be taxed at 5%.

BE spoke to Harijit Singh and Tushar Kanti Dutta who are wholesale shop owners in Burrabazar, the biggest textile wholesale market in Kolkata, West Bengal. Dutta informed, “The new tax system has negatively impacted our sale. Customers are reluctant to visit the market because of the apparent price hike. We as sellers also lack clarity about the new tax system and the confusion is adversely affecting our business.”

Major textile dominant states like Tamil Nadu, Karnataka, and Gujarat were the worst hit post the GST implementation. Textile shops, cloth makers, and factories remained closed in protest against the new tax regime. This brought in negative consequences to the manufacturer with less revenue generation.

According to Ajit Lakra, the Head of the Textile Division, FICO (Federation of Industrial and Commercial Organisation), Ludhiana, “The imported polyester fabric would be cheaper than the made-in-India polyester fabric after the implementation of GST. The GST on polyester yarn should be brought down from 18% to 12%.”

However, the recent revision of GST in textiles by the second GST Council headed by Dr. Amit Mitra has brought in good news for the textile industry. Reducing the job work rate in the textiles sector to 5% from 18% across the entire textile chain may solve the industry concerns which resulted in reduced job rates linked to knitting, dyeing, embroidery, printing, washing, stitching, ironing and others.

The Council also announced reduction in tax rates on man-made yarn from 18% to 12%, while slashing GST levy on job work of zari (embroidery) to 5%, from the previously agreed upon rate of 12%. Post this, textile mills stated that the reduced rate of GST would benefit the spinning and power loom sector further.

According to Sanjay K. Jain, the Chairman of the Confederation of Indian Textile Industry, processing of refund claims for July exports by October 10 and for August exports by October 18 and decision to create e-wallet from next April will improve the cash flow for exporters. This will resolve the problem of blocking of working capital for exporters.

The reduced GST rate will not only facilitate a swift movement throughout the textile chain, but also bring back employment to the sector with increased labour force, benefit domestic consumers and strengthen global competitiveness of India’s textile units. The government has also eased GST rates for exporters to pay a nominal rate of just 1% on the value of goods manufactured for export. The government also plans to introduce e-wallets from April 2018 to improve exporters’ cash flows. Pankaj Anand, Director and Co-Founder, Sabhyata, said, “The GST induction is just a transitory phase with little impact on pricing in the longer run. So, future prospects of the sector are very bright. With better economic growth and the consequent increase in the purchasing power of the Indian middle class, the sector looks very promising. Shoppers need not fret as in the long run, there will be only a ‘little impact’ on the pricing.”

Other governmental reforms

The present government is trying to improve innovation and research associated with the textile industry and is also focusing on organic products. Modi has gone on record saying, “We should catalogue and map our clothing diversity and clearly earmark strengths and specialties of each state or region. Each state should appoint nodal officers dedicated to a few well-known products, who would facilitate producers and traders across the value chain. Today, there is a demand for products with zero carbon footprints. The market for organic dyes, clothes and fabrics made of organic products is growing. Our effort should be to innovate in organic products.”

IBEF also reported that Indian khadi products sales increased by 33% year-on-year to reach Rs.2,005 crore ($311.31 million) in 2016-17 and is expected to exceed Rs.5,000 crore ($776.33 million) for 2018-19. The textiles sector has witnessed a spurt in investment during the last five years. The industry (including dyed and printed) attracted FDI worth $2.47 billion in the last
two decades.

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