Patchwork Policy: On Textiles At GST Rate

On New Year’s Eve, nine hours before the new GST rate of 12% was to kick in for readymade garments and garments, Finance Minister Nirmala Sitharaman Announced that the scheme is closed and the current 5% rate will continue into 2022, or at least for its first quarter. The decision was taken at an emergency meeting of the GST Council, which had approved a higher tax on textiles in its last meeting in September 2021, to correct the anomaly of the inverted duty structure. While the GST rate on man-made fiber is 18% and yarn made from the same is taxed at 12%, the rate on the final fabric was 5%, apparently causing a headache for the textile producers, which the council has decided to reduce. had demanded. The move to increase that rate to 12%, as well as on footwear priced below ₹1,000 a pair, had been on the council’s agenda for over a year, but was put on hold due to the adverse effects of the COVID-19 pandemic on households. Was placed. , Explaining the reconsideration to stop the rate hike that will be effective from January 1, the finance minister indicated that the original decision had come after several negotiations, which, among other things, explored the potential impact on consumers. Nevertheless, a letter from the Finance Minister of Gujarat was received by him on 29 December, which included representations from the industry, prompted for review,

Although the rate hike was intended to help producers get easy credit for taxes paid on inputs, it is not the case as it is seen by many players in an industry that has historically been one of India’s biggest job creators. and contributes about 2% to the overall economy. , Last month, several laths in the textile industry were left idle for a day in what may be the first strike not triggered by industrial unrest in the region, which last saw weak labor union strikes in the 1980s. Was. Those protests, as well as some states’ missiles to the Center, warnings of significant factory closures and job losses, had failed to move the needle and the industry had resigned itself to the new rates. Perhaps, it was incidental that most of the state finance ministers, who are members of the council, were already expected to be in the capital for consultations on the Union Budget for 2022-23. A ministerial group already tasked with the task of rationalizing inverted duty structures across products and reviewing multiple rate slabs of the GST regime, is now entrusted with the additional task of suggesting a suitable structure for textile products; He has two more months to finalize his report. It is unlikely that these sweeping reforms will take place before the coming state assembly elections are over and this time will be used for extensive consultations with industry, consumers and states before penciling in the new rates and avoiding such diversions. can go. If India hopes to revive private investment, curriculum reform needs to be navigated more tactfully and with greater purpose.