India’s textile and apparel industry has received a significant policy boost with the latest round of Goods and Services Tax rationalisation, hailed by industry associations as one of the most impactful changes in recent years. The reforms, introduced under the government’s Next-Generation GST framework, promise to cut production costs, revive consumer demand, support exports, and enhance the sector’s global competitiveness.
The measures directly address issues that have long constrained the sector — particularly the inverted duty structure that imposed higher taxes on raw materials than on finished goods. By correcting these distortions, the new GST rates make Indian textiles more affordable in domestic markets and more competitive abroad.
Strengthening the Textile Value Chain
The rationalisation ensures that benefits are felt across the entire value chain, from fibre to fashion. Lower GST on man-made fibres and yarns levels the playing field with cotton, helping India pursue its fibre-neutral policy and encouraging balanced growth. For garments, a higher exemption threshold makes affordable apparel even cheaper, particularly benefiting middle- and low-income households in Tier-2 and Tier-3 towns.
Industry insiders say this change could be transformative for garment makers, many of whom have faced tight margins due to cheap imports and rising costs. The reform not only supports domestic brands but also bolsters employment in labour-intensive activities such as stitching, tailoring, and finishing — jobs that are critical for women and youth across textile clusters.
Key GST Adjustments at a Glance
- Readymade Garments & Made-ups: GST at 5% up to ₹2,500 per piece (earlier limit ₹1,000), making affordable apparel more accessible.
- Man-Made Fibres & Yarns: Rates cut from 18%→5% for fibres and 12%→5% for yarns, resolving the inverted duty structure and easing working capital pressure for small and medium producers.
- Carpets & Floor Coverings: GST reduced from 12% to 5%, boosting export competitiveness for traditional clusters like Bhadohi and Srinagar.
- Handicrafts & Handlooms: 36 handicraft items, cotton rugs, and handwoven carpets see GST lowered to 5%, offering direct relief to artisans and strengthening India’s cultural heritage.
- Sewing Machines: Both domestic and industrial machines brought down from 12% to 5%, reducing costs for tailoring units and promoting local manufacturing.
Complementary Measures
The reforms are backed by procedural simplifications designed to reduce friction for smaller businesses. Refunds for zero-rated supplies and inverted duty structures are to be processed through a system-driven risk evaluation, promising faster clearances. In addition, the removal of the ₹1,000 threshold for small consignments by courier or post makes it easier for exporters, particularly SMEs and artisan collectives, to sell directly to global buyers.
Two new simplified registration schemes — one for small, low-risk businesses and another for suppliers working through e-commerce operators — aim to cut red tape and bring more participants into the formal system without overwhelming them with compliance.
Industry Reactions and Global Competitiveness
The response from textile players has been overwhelmingly positive. Manufacturers, exporters, and artisan groups have described the reforms as both timely and strategic, aligning perfectly with the Prime Minister’s “5F” formula: Farm to Fibre to Factory to Fashion to Foreign. By lowering costs at each stage and stimulating demand, the new GST framework is expected to stimulate domestic consumption and accelerate exports.
With global buyers increasingly diversifying supply chains, India’s improved cost structure and streamlined compliance environment could position the country as a more attractive sourcing hub. Analysts suggest that this could help India move closer to its ambitious goal of building a USD 350 billion textile and apparel market by 2030.
A Balanced Vision: Heritage and Growth
Beyond economics, the reforms reflect a broader philosophy: “Virasat Bhi, Vikas Bhi” — preserving India’s rich textile heritage while modernising its industrial base. By extending relief to handicrafts and handlooms alongside man-made fibres and apparel, the policy balances tradition with global market aspirations.
If effectively implemented, the Next-Generation GST reforms could reshape India’s textiles landscape. From powering small artisans to strengthening large export-oriented units, the new framework provides a unified push towards making India a true global textile powerhouse.