When Finance Minister Nirmala Sitharaman rose to chair the latest GST Council meeting, few expected the sweeping changes that would follow. Yet, what emerged was a long-awaited relief package for India’s fashion and textile industry, an industry that employs nearly 45 million people and contributes about 2 per cent to the country’s GDP.

The Council’s decision to reduce taxes across the textile value chain is being hailed as a watershed moment for an industry often strangled by complex tax structures and inverted duty anomalies. For consumers, it means lighter bills at the checkout counter; for businesses, it translates into improved margins, competitiveness, and hope for revival at a time when global headwinds threaten exports.

A closer look at the GST overhaul

The Council’s reforms touched nearly every stage of the industry’s value chain from fibers to finished garments.

Table: Changes in GST

For years, the inverted duty structure where raw materials were taxed higher than finished products had distorted supply chains. By ironing out these anomalies, the government has signaled that it wants to put textiles, one of India’s oldest industries, on a stronger footing.

Industry gives ‘Wow’ with a word of caution

“This is nothing short of a big wow for Indian citizens,” said Sanjay K Jain, Chairman of the ICC National Textiles Committee. “Lower GST means lower inflation, higher disposable incomes, and healthier balance sheets for textile firms. It’s a triple win.”

The Clothing Manufacturers Association of India (CMAI) welcomed the changes as it says, the government has accepted two major requests of the industry, removal of the inverted duty structure by making the entire value chain from fibre onwards charged at one rate that is 5 per cent and adopting a fiber-neutral policy, by equating the MMF and cotton fiber chains. The increase of 5 per cent limit from Rs 1000 to Rs 2500 is also an extremely positive move. However, Rahul Mehta, Chief Mentor of the Clothing Manufacturers Association of India (CMAI), warned that the reforms must be implemented carefully. “Uniformity of rates is welcome, but execution matters. If inverted duties creep back due to policy misalignments, we could lose the competitive advantage we just gained,” he said.

Why to consumers

The reforms are particularly significant for India’s growing middle class. Footwear and apparel are essential lifestyle spends, but with inflation eating into household budgets, affordability has been a key concern. By lowering GST on products up to Rs 2,500, the government has ensured that branded shirts, saris, sneakers, and formal shoes fall within reach for millions of consumers.

Table: Impact on consumers

For an average family of four, annual apparel and footwear purchases could now cost Rs 3,000-4,000 less, a meaningful saving in urban as well as Tier-II, III cities.

The export dimension

India’s textile and apparel exports were worth Rs 41.5 billion in FY2024, with garments making up nearly half. But the industry has struggled in recent months due to falling global demand and stiff tariffs particularly from the US, where additional duties of up to 50 per cent loom large.

The GST reforms, while domestic in nature, are expected to strengthen India’s cost competitiveness abroad by reducing input costs. Exporters in hubs like Tiruppur, Surat, and Ludhiana believe this will help them undercut competition from Bangladesh and Vietnam.

Table:

Global buyers are extremely price-sensitive. Every percentage point in tax reduction helps Indian manufacturers to bid more competitively, say Tiruppur- exporters who supply cotton T-shirts to US retailers.

Implementation will be key

While industry bodies have celebrated the reforms, experts caution that GST compliance and refund delays remain a thorn. Small and medium enterprises (SMEs), which account for nearly 80 per cent of India’s apparel output, often struggle with blocked working capital due to late refunds. “The uniform GST rate is historic, but it must be backed by faster refunds and simpler filing. Otherwise, cash-flow problems will continue,” noted Anupama Dalmia, a textile policy analyst.

Overall the GST reforms are being seen as more than just a tax cut they are a reset button for India’s textile and fashion sector. By reducing costs for both producers and consumers, the reforms promise to drive demand, unlock competitiveness, and revive an industry that is both a cultural mainstay and a critical job generator.

As the festive season approaches, retailers expect an increase in sales, while exporters eye a stronger global presence. But the true test will lie in implementation: whether the system can deliver on the promise of simplicity and speed. For now, the industry is cautiously optimistic its fabric stitched together by a tax system finally designed to support, not stifle, its growth.