GST reforms to boost competitiveness of exporters across sectors

The rationalisation of goods and services tax (GST) rates and simplification of procedures will lower costs, address duty-related distortions, result in faster refunds, ease liquidity pressures, and boost competitiveness for exporters across sectors.

 

The measures announced on Wednesday have come at a time when the US has imposed a steep 50 per cent tariff on several Indian-origin products.

 

The removal of the value threshold for GST refunds will significantly benefit small and e-commerce exporters by making even low-value shipments eligible for refunds. This will improve cash flow, reduce working capital constraints, simplify compliance, and streamline refund procedures, particularly for consignments shipped via courier or postal services. As a result, small sellers will be benefited and low-value e-commerce exports will grow.

 

The GST Council lowered the rate for paper packaging, textiles, leather, and wood to 5 per cent from 12-18 per cent. This will lower production costs and enable exporters to offer more competitive prices.

 

The Council also decided that all refunds will be fast-tracked, and will flow within seven days’ time, thus easing liquidity for exporters. Moreover, for certain sectors such as textiles and chemicals — with inverted duty structure, and where input tax credit (ITC) refund was not flowing — the refund will now be provided.

 

“The rationalisation of GST is expected to lower input costs for micro, small, and medium enterprises (MSMEs) and exporters, reduce inflationary pressures on consumers, and correct structural anomalies such as inverted duty structures. By easing liquidity constraints and streamlining refund processes, the reforms will unlock working capital, strengthen supply chains, and enhance the overall competitiveness of Indian industry,” the Department of Commerce said in a statement.

 

SC Ralhan, president, Federation of Indian Export Organisations (FIEO), said that the Council’s approval to release export refunds within seven days based on risk analysis, along with provisional refunds under the inverted duty structure, will help in reducing working capital blockages for exporters. 

 

“These measures will not only strengthen India’s export sector but also lead to increased domestic demand by easing stress on supply chains,” Ralhan said.

 

Mukesh Kansal, chairman, CTA Apparels, said that the reduction in GST and rectification of the long-standing GST inversion in the man-made fibre (MMF) value chain by aligning GST on MMF fibre and yarn at 5 per cent — down from 18 per cent and 12 per cent, respectively — will ease industry costs, boost demand, and make Indian textiles more competitive globally.

 

“It will also allow manufacturers like CTA to reinvest in technology, sustainability, and skill development. It will improve cash flows for MSMEs and support employment generation,” he added.

 

Correction of inverted duty structures in sectors like textiles and food processing, along with reduced GST on eco-friendly products (bamboo, bagasse, jute boards), ensures smoother refunds, better cash flows, and alignment with global sustainability standards.

 

“The excess cash flow that will be available with us as a result of these moves will help us invest more in innovation and search for newer export markets as we face adverse conditions in our traditional US market due to Trump tariffs,” said a leather exporter requesting anonymity.

 

However, the exporter requested the government to look into the issue of putting chemicals that are used by tanneries in the higher 18 per cent bracket.

 

Wednesday’s rate cuts also support innovation as GST on toys and sports goods have been reduced from 12 per cent to 5 per cent, thus incentivising domestic production, countering cheap imports.