Textile industries play a very important role in the development of the Indian economy with respect to GDP, Export promotion, employment, etc. It is the one of the oldest manufacturing industry in India. It is the second largest industry after agriculture which provides skilled and unskilled employment.In this sector, 100% FDI is allowed by the Government under the Automatic Route. Textile Industry contributes more than 10% of Total Export.
Textile Industry is divided into Two Segment, firstly Unorganised and Secondly Organised. The unorganised sector consists of Handloom, handicraft, small and medium-scale mills and Organized Sector consist of spinning, apparel and garments segment which apply modern machinery and techniques.
The rate structure for the textiles is decided at 5 percent and 18 percent for cotton fibre and man-made synthetic fibre respectively. While silk and jute are totally exempted from the GST purview. The GST rate on apparels is also decided on a category basis, as Apparels below INR 1000 will be attracting 5 percent GST while those above this mark will be taxed at 12 percent.
In its recent meeting held on 5th August by GST council took some positive and relaxing decision for the textile industry. The council mentioned rules regarding e-way bill and rates. And at the same time, the rates of GST has been reduced from 18 percent to 5 percent on job work of all textiles and related products manufactured.
The finance minister Arun Jaitley who also heads the GST council along with the representatives of states in general also finalized the e-way bill rules and regulations. In this new decided norm, the registration of goods worth more than INR 50,000 has been made mandatory before the transport is carried on and even that for more than 10-kilometre distance.
Mainly Two types of Indirect Taxes considered by the government is Central Excise Duties and Service Tax which was under wide use. Service is not levied on Textile since it comes under Goods. Under current taxation system, textile products are mostly exempted or are taxed at a very low rate. State Governments have to stop levying Sales Tax after the discontinuation of Additional Excise Duty.
From the tax rate structure, it is seen that cotton fibre will be gaining momentum by the GST rate decided for it. Overall it is concluded that the final rates are very much less than the previous scheme and will definitely benefit the whole industry in a long run.
Leaving behind the fragmented structure of supply chain, the GST will consolidate this structure and will present a better supply chain management to the industry. The self-compliance necessity in the GST will also track down the revenue even if the tax rates are low for some general benefiting of masses.
The complex data of GST rates and categorisation in the textile industry is also speculated to be eased up with the upcoming of the new tax scheme. The price decline will be directly inverting the supply rule and will be boosting the demand on instant basis. As the prices will fall, there will also be competing in the industry making an export healthy environment. While on the domestic front, the price fall may bring negative consequences to the manufacturer with less revenue being generated.
The government has decided to improve the logistics with providing better funds while the labour skills are also in progress. As the government is keeping an eye on this future prospective action, it is definitely stated to be the beneficial step for the whole industry.
Textile exporters have addressed their problems to the parliamentary panel and said that after the implementation of GST there may be a decline in garment shipments in India and also there is a chance of job losses.
The Apparel Export Promotion Council (AEPC) communicated through the presentation to Rajya Sabha Standing Committee on Commerce chaired by Naresh Gujaral.
Ashok Rajani, Chairman of AEPC said, “The positive impact of GST is yet to be felt by garment industry where input costs have not come down. The overall effect of GST on apparel exporters, especially small and medium exporters, is burdensome on exporters stressful due to the substantial increase of working capital and higher transaction cost.” By adding that, “It has not only impacted the production of apparel adversely but has also led to pressure on margins for exporters due to lowering of drawback rates.”
The Council informed to the Parliament Panel in such prevailing circumstances there might be a chance of the reduction in exports in the coming future. The Global garment industry is very competitive so it’s difficult for the Indian industry to compete with them.
Ravi Poddar, Director of Rajasthan Garments Exports Association, said that the exports of readymade garment, which was worth 9110 crores in October 2010, has declined by about 40 percent. According to October 2017 report, the garments export stand at Rs. 5398 crores now. This was mainly due to cut in duty drawbacks after GST implementation.
Another major reason for this decline is the unavailability of GST refund to the exports industry manufacturers and suppliers, which has affected the cash flow in the industry resulting in a shortage of money. The export committee has formally requested the government to clear the pending credits and GST refund as soon as possible.
Garments Manufacturing units are forced to move to other places due to high GST rate and low duty discounts. The association is expecting that many of these units might consider moving to other neighbour countries such as Sri Lanka and Bangladesh where special incentives of up to 9 to 15 percent are offered to such manufacturers.
The graph of textile imports is continuously growing from last few months and the Import industry is putting all the cause to GST which has reduced the import duties and created a welcoming path for overseas fabric and garments into the country. The import of Cotton fabric increased in July up to 45%, in August 29% and in September 12%. Furthermore, the import of fabric, textile yarn, and made-up materials surged 12% continuously from year to year in October and the estimate suggests that it reached to $153.9 million.
Sanjay Kumar Jain, chairman of Confederation of Indian Textile Industry (CITI) said, “Unlike CVD and SAD, IGST is fully adjustable against GST liability on the sale of the imported product. Recognising the problem and threat of imports flooding the market, the government recently increased import duty on MMF(man-made fiber) fabric from 10% to 20%. However, the import duty on MMF yarn and cotton fabric have been kept at old rates”
CITI explained, “In the pre-GST scenario, import of garments from Bangladesh was attracting Rs 77 a piece (where MRP is Rs 999 a piece) and Rs 116 a piece (where MRP is Rs 1,500 a piece in the shape of CVD plus education cess and thereon. However, in the post-GST scenario, there will be no cost for import of garments from Bangladesh. Similarly, in the case of import of garment from other countries, the cost has been substantially reduced by Rs 77 a piece and Rs 116 a piece where MRP is Rs 999 a piece and Rs 1,500 a piece respectively.”
This is the reason the Indian garments industry is positioned in front of tough competition from imported textile stuff, specifically the competition is arousing from Bangladesh because its production cost is cheap compared to India. This has made the textile industry to request to GOI to surge import duty on MMF fabric, cotton fabric, and MMF yarn by 15% in favour to save the local fabric, yarn, garment manufacturers from reduced import duty dilemma. It is necessary to increase the import duty on textile products of the nations such as Sri Lanka and Bangladesh whom with India tie by FTA (free trade agreement).
Mr Sanjay Kumar Jain said, “There is a greater need to impose safeguard measures such as ‘Rules of Origin’, ‘Yarn Forward and Fabric Forward Rules’ on countries like Bangladesh and Sri Lanka that have FTAs with India to prevent cheaper fabrics produced from countries like China routed through these countries.”