The higher GST rates for textile and apparel items from January 2022 has come as a blow to micro, small and medium-scale textile and clothing units. The manmade fiber sector would face 12 per cent rate from fiber to garments, while the cotton sector would have a five per cent tax on cotton and yarn and 12 per cent for fabrics and garments. As Sanjay K Jain, Chairman of the Textiles Committee of the Indian Chamber of Commerce points out in an industry, where almost 80 per cent units are in the MSME segment, fixing the rate at 12 per cent for fabrics and garments will only lead to higher prices for the common man,.

The move is expected to push up prices for consumers and spur inflation at a time when high raw material costs have already impacted prices. Since it is the micro, small and medium-scale units that make the low-cost garments mostly these units may suffer from a drop in demand with a possibility that in the long run many units in the unorganised sector move out of the GST net. A carrot and stick approach appears to have been followed. With the announcement of production linked Incentive scheme, GST rates have been increased by seven per cent.

As per Clothing Manufacturers Association of India Chief Mentor Rahul Mehta the notification was both, 'disappointing and distressing'. The move would lead to higher prices for end consumer at a time when high raw material costs had already impacted prices. The industry had made several representations to the government in the last two months to not change the rates and would continue to do so, he added.

Since almost 90 per cent of fabric production in the country is in the unorganised sector, increasing the rate to 12 per cent for fabrics is expected to hit power loom and handloom weavers. However the move to set right the inverted duty structure for the manmade fiber sector has been welcomed.