GST hike on garments hit ethnic wear sales during Diwali
What's the story
The recent hike in Goods and Services Tax (GST) on ready-made garments has affected the sales of ethnic and festive wear during Diwali. The tax on such garments priced over ₹2,500 was raised from 12% to 18%, leading to a significant drop in sales. Rahul Mehta, Chief Mentor of the Clothing Manufacturers Association of India (CMAI), said that ethnic wear and festive wear saw a decline of about 15%.
Market response
Shift toward lower-priced garments
The tax hike has prompted a shift toward lower-priced garments under ₹2,500, which still attract a nominal 5% GST. This trend is particularly visible in ethnic wear, which accounts for nearly 25% of India's $100 billion apparel market. Mehta said branded Indian garments usually fall in the ₹2,500-₹7,000 range, and international brands are priced higher, but their demand remains constant.
Consumer impact
Middle-class consumers most affected
The new tax regime has particularly affected middle-class consumers, who usually spend more on wedding and festival attire. To avoid paying extra due to the higher tax on expensive clothes, many are now opting for cheaper options. This change in spending habits is a direct result of the increased GST rates imposed by the government.
Tax debate
Industry demands uniform tax rate
Despite lower input costs due to reduced GST on man-made fibers and yarns (now just 5%), the benefit isn't passed on to consumers buying mid-range or premium clothes, stuck at an 18% tax. Industry groups are demanding a single uniform tax rate across all garment categories. They believe this would ensure fairness and promote growth in the apparel industry.