Finance Minister Addresses Inverted Duty Structure

India's textile sector is poised for a significant transformation as the Finance Minister announces a uniform 5% Goods and Services Tax (GST) rate across the entire man-made textile value chain. This pivotal change, set to take effect from September 22, 2025, aims to rectify the long-standing issue of inverted duty structure that has been hampering the industry's growth and competitiveness.

The New GST Structure

The revised tax structure brings a uniform 5% GST rate to all segments of the man-made textile value chain, including:

• Man-made fibres
• Yarn
• Fabrics

This move aligns the tax rates on fibres and yarn with the existing 5% rate on fabrics, effectively eliminating the inverted duty structure that has been a point of contention in the industry.

Historical Context

The government's decision comes after a previous attempt to implement a uniform 12% GST rate across the sector. However, that initiative was rolled back following protests from Micro, Small, and Medium Enterprises (MSMEs) and traders. The new 5% rate represents a more balanced approach, addressing both industry concerns and the need for structural reform.

Expected Benefits

The implementation of the uniform 5% GST rate is anticipated to bring several advantages to the textile sector:

1. Cost Pressure Reduction: By lowering the GST on fibres and yarn from higher rates to 5%, manufacturers are expected to see a decrease in input costs.
2. Working Capital Release: The alignment of tax rates will help unlock working capital that was previously tied up due to the inverted tax structure.
3. Enhanced Competitiveness: Domestic manufacturers are likely to become more competitive in both local and global markets due to the simplified tax structure and reduced costs.

Industry Impact

The textile industry, particularly the man-made fibre segment, is expected to see positive effects from this tax reform. Companies that are likely to benefit from this change include:

• KPR Mill
• Alok Industries
• Vardhman Textiles
• Garware Technical
• Ganesha Ecosphere
• Welspun Living
• Siyaram Silk
• Trident
• Arvind Ltd
• Raymond

These firms, representing various segments of the textile value chain, are positioned to leverage the new tax structure to improve their operational efficiency and market competitiveness.

Looking Ahead

As the implementation date approaches, the textile industry will be keenly watching how this change unfolds. The uniform GST rate is expected to simplify compliance, reduce tax-related complexities, and potentially spur growth in the man-made textile sector.

The government's move demonstrates a commitment to addressing structural issues in the textile industry, which is crucial for the sector's long-term growth and its ability to compete in the global market. As the industry adapts to this change, it may lead to increased investments, job creation, and overall economic growth in the textile sector.

The Indian textile sector is poised for potential changes as proposals for GST rate cuts and threshold adjustments are set to be discussed at the upcoming GST Council meeting scheduled for September 3-4. These proposals, if approved, could significantly impact various segments of the textile industry and related stocks.

Proposed GST Rate Reductions

Several key textile products are under consideration for GST rate cuts:

• Synthetic Filament Yarn
• Sewing thread
• Gimped Yarn
• Metalised Yarn
• Rubber Thread

For these products, the GST rate is proposed to be reduced from 12% to 5%. Additionally, carpets and gauze are also expected to see a similar reduction from 12% to 5% GST.

Readymade Garments: Threshold Adjustment and Rate Change

A significant proposal involves readymade garments:

• The threshold for garments attracting 5% GST is proposed to increase from ₹1,000 to ₹2,500.
• Garments priced above ₹2,500 would be subject to 18% GST, up from the current 12%.

This change could have substantial implications for pricing strategies and consumer behavior in the readymade garment segment.

Impact on Textile Stocks

The news of these potential GST changes has already begun to influence the stock market:

• Vardhman Textiles shares experienced a notable jump of 13% on Thursday.
• Other stocks that could be affected include Arvind, Aditya Birla Fashion, Page Industries, Trent, Vedant Fashions, and Sai Silk.

However, it's important to note that these are currently proposals and will be subject to the GST Council's decision during their September meeting.

Recent Challenges in the Textile Sector

While the proposed GST changes offer a glimmer of hope, the textile sector has faced recent challenges:

• Textile stocks have seen a decline of 15-20% in the past month.
• This downturn is attributed to concerns over higher US export tariffs.
• Companies deriving 50-70% of their revenue from the US market have been particularly affected.

The proposed GST rate cuts and threshold adjustments could potentially provide some relief to the sector, depending on the final decisions made by the GST Council. Stakeholders in the textile industry will be closely watching the outcomes of the September meeting, as these changes could significantly impact pricing strategies, competitiveness, and overall market dynamics in the Indian textile sector.