2 min read
25 May 2021

The textile industry is one of the oldest divisions in the country. It contributes more than 10% of India's total exports. Moreover, textile and apparel exports grew by 38% in October 2018. It further increased by 14% in November 2018. This data attests to the fact that the textile industry is doing well in terms of exports. However, earlier in 2018 and 2017, the textile industry experienced severe stress. This was especially after the introduction of the Goods and Services Tax (GST). In the case of domestic trade, the textile industry experienced both positive and negative outcomes due to GST.

Here is a list of pointers explaining the impact of GST on textile traders in India.

1. Encouraged only the organised sector

The Indian textile industry consists of established and unorganised sectors. A primary chunk of this industry belongs to the unorganised sector. The unstructured category includes small and medium-scale mills, handlooms, and handicrafts. With the introduction of GST, a gap in ITC (input tax credit) flow was witnessed. It is important to note that ITC is not to the unorganised sector. With GST, a newly introduced input credit chain is now shifting the balance towards the organised sector.

Through this, the unorganised textile trade has been impacted negatively.

2. Reduction in production cost

GST reduced India's garments industry's input costs by subsuming complicated taxes such as OCTROI, entry tax, luxury tax, etc., into a uniform tax system. Earlier, excise duty and VAT (Value Added Tax) applied to yarn and branded garments. This added to the input cost of the final product. Further, these costs differed from state to state. However, with uniformity and simplified taxes, the input cost has been reduced, thus lowering the manufacturing cost of textile products.

3. Reduced compliance burden

Formerly, various indirect taxes such as central excise, entry tax, OCTROI, VAT/ Central Sales taxes needed different agencies for their management. With the introduction of GST, all these taxes have been subsumed. Manufacturers are now experiencing a reduced compliance burden. Therefore, textile traders can now concentrate more on business expansion without worrying about complicated compliance activities.

4. Impact on exports

The recent rise in textile exports shows that there is rise in demand for Indian goods. This can also be due to reduced input costs, which might have been reflected in the final price of products. The growth of textile exports in India has been impressive in recent months.

Therefore, GST has impacted textile traders positively and negatively. However, the positive impact has been more significant, and its effects are now visible from the recent increase in textile trade activity.

Additional read on GST

Online GST Registration Process Explained

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