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GST may hit small yarn buyers, boost fabric imports

India’s small, non-integrated manmade fabric manufacturers feel threatened by GST. Under GST, manmade fiber yarn will be taxed at 18 per cent while its end product, fabric, will be taxed at five per cent. Tax differential leaves integrated textile firms which produce yarn and use it to make fabric at an advantage over those which buy yarn to make fabric. Also, cotton made yarn and fabric will attract five per cent duty.

This imbalance is expected to hit small textile companies which buy manmade yarn to weave fabric. In addition, since imported fabric will attract 15 per cent effective duty, cheaper Chinese goods may also pose a serious threat.

GST of 18 per cent on manmade fiber would make the job work segments and their principals uncompetitive against large composite mills. This problem is further accentuated as non-integrated textile players would not get refund of excess GST on input. The levy may result in job losses in the non-integrated segment. Competition from Chinese players would intensify.

Since China provides a rebate of 18 per cent, fabric manufactured there would be 20 per cent cheaper when exported to India even after considering the ten per cent import duty and five per cent GST on import of fabrics. This would result in higher competition for Indian fabric and garment manufacturers.

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