GST on textile products may be reworked. The move is expected to help the sector be more competitive in the global market. The main reason is the labor-intensive nature of the sector. As of now, barring raw silk, khadi yarn and some other items, there are three rates — 5, 12 and 18 per cent — for various textile items. Though there is a refund mechanism for exporters, it takes time and affects exporters’ efficiency. In countries such as China, Indonesia, and Thailand there is a single rate. It is 16 per cent in China, 10 per cent in Indonesia and 7 per cent in Thailand, making them more competitive.
There are issues with customs duty. India has more than 300 tariff lines for textiles items, making things more complex for global buyers. For example, Bangladesh imports yarn, fabric etc from China as it is cost effective and then produces readymade garments for the export market in a big way.
However, any work on trade tariff will be watched very carefully by global trade partners and there could be allegations of WTO norms violation. The foreign trade policy allows fulfillment of export obligations under various schemes through third party exports. Such a provision of getting exports goods without payment of GST from textile manufacturers will lead to ease of doing business and also a seamless flow of credits.