GST rate rationalisation to boost revenue growth of organised apparel retail sector

The recent Goods and Services Tax (GST) rationalisation will add about 200 basis points to revenue growth of India’s organised apparel retail sector this fiscal, keeping it steady at 13-14% for the second consecutive fiscal, according to Crisil Ratings.

The GST rate cut on apparel priced below ₹2,500 is likely to lift the demand in the mid-premium segment, while the fast fashion/value segment, which account for 65 % of the sector’s revenue, will continue to drive the momentum. The uniform 5% GST, compared with the previous dual structure of 5% for apparel priced below ₹1,000 and 12% for those between ₹1,000 and ₹2,500, has widened the consumption base. The increase in the GST on apparel priced more than ₹2,500 from 12% to 18% has weighed on premium categories, including wedding wear, woollens, handlooms and embroidered clothing that account for about 35% of the organised apparel sales.

Anuj Sethi, senior director, Crisil Ratings, said in a press release, “Extending the 5% GST slab to apparel priced up to ₹2,500 boosts price competitiveness across the fast-fashion/value and mid-premium segments, whose customers are price-sensitive. Benign inflation, easing food cost, and faster fashion-refresh cycles will help retailers gain a modest share-of-wallet advantage in discretionary categories, leading to sustained sectoral revenue growth of 13-14% this fiscal.”

Poonam Upadhyay, Director, Crisil Ratings, added, “Lower cotton prices and the reduction of GST on synthetic fibres and yarn, from 18% and 12% to a uniform 5%, will ease input cost. As a result, given (that) raw materials account for almost two-thirds of production cost, the sector’s operating margin is expected to inch up to 14.0-14.5% this fiscal.”