Global buyers are regularly calling suppliers in the buzzing town of Tirupur, India’s biggest knitwear hub that boasts Rs. 25,000 cr exports every year.International callers, familiar with GST benefits, are very clear about what it means for them. “They want a cut in prices,” says S Sakhtivel, Secretary of the Tirupur exporters association. The knitwear industry is clear about long-term benefits, but Sakhtivel also has other callers: Exporters want details about tax implications for the industry that has numerous workers and units involved in different parts of the chain such as printing, embroidery, washing, dyeing etc., which are taxed at 18 per cent, while jobs related to yarn and fabric enjoy a 5 per cent rate.
They are still coming to terms with the new system. “We are caught between buyers and suppliers not knowing what to do,” he rues although the industry is cautiously optimistic about GST.In the Southern States, the optimism is shared by many. Several businesses in Kerala are happy as they depend on other states for supply of many consumer goods, poultry, cosmetics and other items; pump manufacturers in Coimbatore, the country’s biggest hub of the industry, are happy their tax rates haven’t changed much and all firms are gaining from easier truck movement although they are concerned about the nitty-gritty of the new tax. At Tirupur, apart from the massive export orders, domestic knitwear sales amount to another Rs. 12,000 cr.
“Unlike for exports we don’t get input credit for domestic sales. So the 18 per cent tax for job works will have to be borne by the manufacturer which naturally will raise the manufacturing cost and affect the fund flow. Unless all the works are brought under a single slab of 5 per cent, we have no option but to pass it on to the consumer,” said Raja M Shanmugham, a leading exporter and the president of the association. Shanmugham says nobody has a clear picture of GST. “Our suppliers are confused. They approach us and when we need clarification we go to tax officials. But even they cannot give us the solution. They refer to the higher authorities,” he said.
The industry has been expecting a sales boost after the GST for readymade garments below Rs. 1,000 was fixed at 5 per cent, some are concerned about flood of imports. “Higher cost of Tirupur garments may make the big retailers to turn to cheaper ones from Bangladesh, which has already captured 25 per cent of the market in the country,’’ says T R Vijayakumar, who heads CBC Fashion Asia Pvt. Ltd.
The pump and motor manufacturers in Coimbatore are not unduly worried about GST as the 12 per cent and 18 per cent slabs for each are only 0.5 per cent higher from before. Incidentally, Coimbatore accounts for 45 per cent of total pumps and motor production in the country amounting to Rs. 3,500-4,000 cr yearly. The problem again is job works by vendors, which is taxed at 18 per cent.