GST rationalisation to lift organised apparel revenue by 200 bps: Report

The recent goods and services tax (GST) rationalisation is set to lift revenue growth of organised apparel retailers by about 200 bps this fiscal, keeping the topline steady at 13-14 per cent for the second financial year in a row, a report said on Monday.

The GST rate cut on apparel priced below Rs 2,500 is likely to lift demand in the mid-premium segment, while the fast fashion or value segment will continue to drive the momentum, Crisil Ratings said in a report.

Though limited, the GST relief provides timely support to sustain growth, the report stated.

The uniform 5 per cent GST rate -- versus the previous dual structure of 5 per cent below Rs 1,000 and 12 per cent between Rs 1,000 and Rs 2,500 -- has widened the consumption base, it added.

Conversely, Crisil Ratings said, the increase in the GST rate on apparel priced above Rs 2,500 from 12 per cent to 18 per cent has weighed on premium categories, including wedding wear, woollens, handlooms, and embroidered clothing.

The premium segment accounts for about 35 per cent of organised apparel sales.

"Extending the 5 per cent GST slab to apparel priced up to Rs 2,500 boosts price competitiveness across the fast-fashion or value and mid-premium segments, whose customers are price-sensitive. With the timing of the GST rate cut coinciding with the festive season, demand should increase as middle-class spending picks up," Crisil Ratings Senior Director Anuj Sethi said.

This development is notable especially following six consecutive quarters of moderate growth, despite festive seasons and prolonged discounts to boost revenue, the report stated.

The impact will likely be most visible among buyers in the Rs 2,500-Rs 3,500 range, it said.

"Apparel retailers with a higher share of premium sales may choose to absorb part of the GST hike to sustain demand during the ongoing festive and wedding season, when buying activity is buoyant. However, lower cotton prices and the reduction of GST on synthetic fibres and yarn, from 18 per cent and 12 per cent to a uniform 5 per cent, will ease input costs," Crisil Ratings Director Poonam Upadhyay said.

Overall, GST revisions align with India's evolving consumption dynamics, which are driven by rising middle-class incomes, urbanisation, and a visible shift towards affordable, fashion-forward clothing, the report added.