GST hike on apparel could shut MSMEs, lead to 100,000 job losses: CMAI

The CMAI said that the proposed GST rate revisions pose a significant threat to the apparel industry, which is facing challenges like drop in consumer demand, profit erosion and working capital issues

The Clothing Manufacturers Association of India (CMAI) has raised concerns regarding the rate-rationalisation proposal put forward by the Group of Ministers (GoM), chaired by Bihar Deputy Chief Minister Samrat Chaudhary, which includes significant changes to GST rates for the apparel sector.

 

Under the new recommendations, ready-made garments priced up to Rs 1,500 will retain the 5 per cent GST rate, but those priced between Rs 1,500 and Rs 10,000 will see a significant increase to 18 per cent. Garments above Rs 10,000 are proposed to fall under the highest GST bracket of 28 per cent.

 

In response, the CMAI has expressed deep concerns regarding the potential adverse effects of these changes on the apparel industry, particularly the impacts on manufacturing, pricing, and consumer demand.

 

“The proposed GST rate hike risks severely disrupting the formal retail sector by driving both consumers and businesses toward informal channels. This shift would adversely affect legitimate retailers and potentially benefit unscrupulous sellers and illegal merchants,” the CMAI said in a statement. 

It further said that the textile industry, already under pressure, may lose up to 100,000 jobs, with small and medium-sized enterprises (SMEs) in spinning, weaving, and garment manufacturing — operating on thin profit margins — facing income losses and squeezed profitability.

Tax hikes threaten livelihoods

The handloom sector, which employs over two million weavers and plays a key role in India’s cultural heritage, could experience income reductions of up to 25 per cent, further jeopardising its traditional business models and limited market access. Similarly, the wool industry, which employs about 1.2 million people in the organised sector and an additional two million in related industries, is expected to see similar negative impacts.

 

“Such a hike would lead to more price inflation, compounding challenges for price-sensitive consumers, especially women. Higher taxes on products related to celebrations and festivals will further slowdown consumption, which is already on the decline, creating a potential setback for the economy,” the CMAI said.

Tax policy sparks concerns

Weddings and other cultural celebrations, important to many middle-class families, may become more financially burdensome. While the government aims to increase tax revenue, the proposed changes risk reducing overall industry compliance, which could undermine efforts at formalisation and erode the tax base. A more effective strategy might involve encouraging compliance through lower tax rates and better enforcement.

Apparel industry faces additional strain

Santosh Katariya, president of CMAI said, “The proposed GST rate revisions pose a significant threat to the apparel industry as a whole, which is already facing challenges like drop in consumer demand, profit erosion and working capital issues. While we acknowledge the government’s commendable step of raising the 5 per cent GST threshold from Rs 1,000 to Rs 1,500, benefiting the weaker segments, the middle class, which forms a significant portion of the consumer base, remains disproportionately impacted by these hikes.”

 

He further said, “If implemented, it could lead to closures of MSMEs in our sector, further destabilising an industry that plays a vital role in employment and economic growth. A uniform GST rate of 5 per cent was conducive and offered a practical solution to these challenges.”

Consultation urged before GST revisions

Rahul Mehta, chief mentor of the CMAI said, “The government must consult industry stakeholders to fully understand the implications and avoid further challenges before making decisions. The government’s commitment to ease of doing business should reflect in their actions, supporting policies that drive growth, reduce obstacles, and help the industry to thrive.”

 

“In light of these concerns, the CMAI urges the government to discard the proposed GST rate revisions. While the intent to streamline the tax structure is recognised, it is crucial that policy changes should only strengthen the apparel industry’s growth and stability,” the statement said.