GST rate cut impact: Synthetic textiles to be 5-7% cheaper from August

GST Council allows input credit, to reduce effective rate on fabric to 5% now from 12% earlier

Synthetic textile manufacturers are planning to cut the prices of their products by at least 5 per cent from August following the government's decision to reduce the effective GST (goods and services tax) rate on its raw materials by 7 per cent from July 27.

The GST Council in its meeting held on Saturday had decided to allow input credit on manmade fabric equivalent to 7 per cent. This will provide a level-playing field to synthetic textile manufacturers through a uniform tax rate on the entire value chain. The move will cut effective GST on manmade (synthetic) fabric to 5 per cent from 12 per cent earlier. The revised GST rate will be applicable from July 27.

As of now, all textile raw materials, including cotton yarn and its fabric and synthetic yarn attract 5 per cent GST. But synthetic fabric manufacturers were forced to pay 12 per cent of duty without having any opportunity to claim a refund of duty difference. This means the synthetic fabric was the only product in the textile value chain with 12 per cent of GST.

"The cut in GST rate will provide a level playing field for synthetic fabric manufacturers. Assuming 1-2 per cent of the cost goes for value addition, synthetic textile raw materials will be cheaper by at least 5 per cent. This cost benefit will certainly be passed on to consumers resulting in 5 per cent cheap synthetic textiles from August," said Madhusudan Bhagaria, Chairman and Managing Director, Filatex India, one of the country's largest players in the synthetic textile industry.

India produces around 4 million tonnes (mt) of synthetic yarn annually. Considering synthetic textiles' major consumption in the lower class, a 5 per cent price cut would bring in a big respite for consumers. The GST cut will also help clear backlog of nearly Rs 10 billion of duty differential which the synthetic textile industry was demanding from the government.

Trading between Rs 140-150 a kg currently, synthetic yarn prices remained volatile in the last one year due to range bound crude oil prices.

"The GST rate cut will bring additional demand of synthetic textiles in coming years," said a senior official of a leading synthetic yarn and fabric manufacturer.