From Tiruppur to Surat, industry welcomes GST reset for India’s textiles sector

The sweeping tax reforms were announced by the Finance Minister Nirmala Sitharaman at the latest GST Council meeting, the biggest cheer did not come from branded apparel retailers. Instead, it rose from cotton ginners, yarn spinners, and MMF producers, the backbone of India’s textile value chain who have long battled a distorted tax system that taxed raw materials higher than finished goods.

The council’s decision to bring the entire textile sector under a uniform 5 per cent GST rate has been hailed as a structural correction for an industry that contributes 2 per cent to India’s GDP and employs over 45 million people. For the cotton and MMF segments in particular, the reform ends years of inverted duty anomalies that left manufacturers squeezed between rising raw material costs and wafer-thin margins.

Breaking the inverted duty knot

For decades, India’s textile manufacturers especially in Surat, Tiruppur, and Ludhiana struggled under a peculiar tax regime where man-made fibres (MMF) and yarns attracted an 18 per cent GST, while fabrics and garments faced just 5-12 per cent. This inversion penalised domestic producers, encouraged imports, and undermined the fibre-to-fashion supply chain. Now, with both cotton and MMF products aligned at 5 per cent, the system has finally turned fibre-neutral.

Table: GST overhaul in textile value chain

“This is nothing short of a structural reset,” says Sanjay K Jain, Chairman, ICC National Textiles Committee. “The move makes Indian MMF more competitive against imports from China and Indonesia, while also levelling the playing field between cotton and synthetics.”

A lifeline for MMF, India’s textile growth engine

While cotton remains culturally central to India’s textile story, MMF has been increasingly driving global demand. Yet, India’s share in the global MMF market lags behind China, Indonesia, and Vietnam. One major reason: the punitive GST slab that raised input costs by nearly 13 percentage points compared to fabrics. With the uniform rate, MMF manufacturers expect capacity utilisation to rise sharply. Surat, India’s polyester hub, sees the reform as a turning point. “We were losing orders because polyester yarn was more expensive to source domestically than to import. With GST rationalisation, we can price more aggressively,” said Rajesh Desai, a Surat-based yarn exporter.

Cotton relief, cheaper inputs for mills

Cotton, which still accounts for nearly 60 per cent of India’s textile exports, also stands to benefit. Ginning mills and spinning units, especially in Gujarat, Maharashtra, and Tamil Nadu, were hit by higher tax on packaging and accessories costs that exporters could not easily recover. With packaging and ancillary materials also brought under the 5 per cent bracket, input costs are expected to fall by 3-5 per cent. For mills already under pressure from volatile global cotton prices, this relief is timely. The GST cut won’t lower global cotton prices, but it does soften the blow for Indian spinners, opines Anupama Dalmia, textile policy analyst.

Competitive against Bangladesh & Vietnam

India’s textile and apparel exports were worth $41.5 billion in FY2024, but growth has been sluggish amid falling global demand and tariff disadvantages. The GST overhaul, though domestic in nature, is expected to improve competitiveness by lowering production costs.

Table: India’s textile exports

Exporters in Tiruppur, which supply cotton T-shirts to US and EU retailers, believe the reforms could help them bid 3-5 per cent lower than before. “Global buyers are extremely price-sensitive. A single-digit tax cut can mean the difference between winning and losing a contract,” said a leading exporter.

Regional hubs winners of GST relief

Surat (MMF Hub): Polyester yarn and synthetic fabric exporters expect cost savings to translate directly into new orders. “We had lost contracts because it was cheaper for buyers to import from China. Now, our prices are finally competitive,” said Rajesh Desai, Surat-based exporter.

Tiruppur (cotton knitwear): Known for cotton T-shirts and knitwear shipped to US and EU retailers, Tiruppur’s exporters believe the reforms will increase order flows ahead of the festive buying season in the West.

Ludhiana (wool & blends): With packaging materials also reduced to 5 per cent, exporters say overhead savings will help smaller units quote more aggressively in overseas tenders.

The consumer angle

Though the big winners are manufacturers, consumers will also see some benefit. Branded shirts, saris, school uniforms, and sneakers priced up to Rs 2,500 will now attract only 5 per cent GST.

Table: Impact on consumers

For a middle-class family of four, annual savings could run into Rs 3,000-4,000 an added bonus as festive season demand picks up.

Now, execution is prime

Industry bodies, while welcoming the move, caution that refund delays and compliance complexity remain major hurdles. SMEs, which account for 80 per cent of textile production, often suffer from blocked working capital due to slow GST refunds. “Uniformity of rates is historic, but execution matters,” warned Rahul Mehta, Chief Mentor, CMAI. “If refund bottlenecks persist, the liquidity crisis will continue to haunt small manufacturers.”

By unifying tax rates, the government has not just eased consumer bills but also strengthened the cotton and MMF backbone of India’s textile industry. The reforms offer cost relief, global competitiveness, and renewed investor confidence in a sector that is both labour-intensive and strategically important. The true test, however, will lie in whether GST implementation delivers on its promise of simplicity, speed, and neutrality. For now, cotton and MMF manufacturers finally feel the system is working with them, not against them.