Retail price inflation for the clothing and footwear segments peaked in seven years at 7.94% in November. The clothing and footwear players expressed their concerns about the impact on consumption of the increase in the prices of raw materials coupled with the entry into force of the new GST regime for these sectors from the January 1st.
Clothing and footwear are one of six groups in the Consumer Price Index and have a combined weight of 7.36 percent. It has been on the rise since May of this year and in November it reached its highest level after August 2014, when it reached 8.04%. Inflation is expected to intensify further as a notification from the finance ministry prescribes a uniform GST rate for the textile and footwear sector from January 1.
The tax rate on textile articles with a sales value not exceeding 1,000 yen per piece will be 12 percent to 5 percent. Likewise, the tax rate on shoes whose sale value does not exceed 1,000 yen per pair has been increased to 12 percent instead of 5 percent. In addition, tax rates on various raw materials used in the manufacture of textile articles have been rationalized. As a result, these inputs will be taxed at 12 percent instead of multiple tax rates ranging from 5 to 18 percent.
Impact on consumers
Lalit Agarwal, managing director of value retailer V-Mart, which sells clothing, footwear and home products, said: “I haven’t seen this kind of inflationary pressure in the past two decades in terms of price of raw materials and raw materials. We had to increase prices by around 8-9% over the previous year due to these inflationary pressures. With the additional 7% increase in the GST, product prices will rise further and impact the pocketbook of consumers. He added that consumers might consider reducing their spending or the frequency of purchasing these products.
Industry associations such as the Garment Manufacturers Association of India, the Retailers Association of India and the All Traders Confederation of India have sent various representations to the Center to reconsider this decision. Textile industry associations also met with the Minister of Finance on Tuesday.
Due to rising commodity prices and rising GST, consumers could consider a 15-20% increase in clothing prices by early next year, said mentor Rahul Mehta Chief of the Indian Garment Manufacturers Association (CMAI). . “The GST hike is applied to items priced under 1,000 and therefore the full impact will be felt by price-conscious consumers or consumers from poor socio-economic backgrounds. This will impact consumption. At the same time, this should push the smaller players towards the unorganized segment. The GST rate hike will have a negative impact on 85 percent of the textile and clothing value chain, but the challenge of the reverse tariff structure is only faced by 15 percent of the chain. value of the industry, ”he added.
A senior executive at a footwear company said that due to raw material cost pressures, industry players had to increase prices by around 5-10% in various categories and that with the GST hike, the overall impact of prices on the footwear industry could vary between 10 -15 percent during this fiscal year.