The strong ground for textiles

Vandita Jadeja

11 Jul 2017

The textile industry in India is one of the oldest industries in the Indian economy. Being a highly labor intensive industry, it is also one of the largest employers in the country.

The Indian textile industry is expected to reach US $223 billion by 2021.

It has huge potential in catering to the domestic requirements as well as the export demands. With Government initiatives and Foreign Direct Investment in the sector, this industry has a stable and steady growth ahead. With the rollout of GST, traders in the textile sector are convinced that the future ahead is bright and shows positive signs of growth. The players are planning major expansion in terms of trade and production. GST regime is expected to bring a fresh life into the old management system. The weavers and traditional craftsmen are looking forward to a positive change in the industry. The GST regime has announced a cut in the rates on merchant services, which has brought down the rate from 18% to 5%.

The textile and apparel industries are highly dependent on the merchant factories, where the input goods are manufactured. Since the input goods have been kept under various slabs of tax, the existing high tax would have stunted their business. Over two thirds of the volume manufactured is in the merchant factories, hence the textile industry is hugely dependent on their services. With a uniform rate of tax, the future of the job workers can be secure. The Government has taken steps in the past to give a boost to the textile industry by promoting high value handloom products with the new design and zero defects. It has also come up with a media strategy that provides a medium to the artisans and helps them emerge out of anonymity. This digital platform connects craftsmen to a huge body of buyers. A large number of textile industries operate under the unorganized sector which creates a gap in the flow of input tax credits.

GST will make it a smooth process and enable an easy input credit system which would shift the balance towards the organized sector.

GST is likely to have an impact on the manufacturing costs, with the implementation of one tax; it would help reduce the overall cost of production for merchants. Under GST, the input credit will be allowed on all capital goods as compared to the old tax regime where excise duty was not allowed as an input tax credit, which means the cost of production will further come down. Further, the implementation of GST is expected to make the textile industry more competitive in the export market. Currently, not many manufacturers are keen on exports due to the extensive procedures and delays. Under GST, this process will be smooth and the input tax credit will be provided as a refund which will be a significant boost for the entire industry. The duty drawback schemes will be eliminated and the manufacturers can gain immediate refund in the form of input tax credit.

To conclude, it can be rightly said that GST will help this industry expand in terms of exports as well as domestic production. There will be more registered players and a well regulated system which will bring many merchants into the organized sector. GST is expected to create more jobs and opportunities for a sustainable and long term growth.