GST Revamp Stimulates Growth in India's Apparel Sector Amid Mid-Premium Surge

The rationalisation of GST rates in India's apparel sector is driving a steady revenue growth of 13-14%, mainly in the mid-premium segment, as per Crisil Ratings. Although demand in the premium segment has slowed, lower-priced apparel segments are expected to offset the impact, bolstered by festive season spending.

The restructuring of India's Goods and Services Tax (GST) has poised the organised apparel retail sector for a robust revenue growth of 13-14% this fiscal year, marking a steady trend for the second consecutive year, according to a report by Crisil Ratings. A crucial factor in this growth is the shift to a uniform 5% GST on garments priced below Rs 2,500, replacing a dual structure of 5% below Rs 1,000 and 12% up to Rs 2,500. This move is anticipated to significantly boost demand in the mid-premium segment, while the fast-fashion and value segments are expected to continue leading overall growth.

However, a GST increase from 12% to 18% on apparel priced above Rs 2,500 has tempered demand in the premium segment, affecting categories such as wedding wear, woolens, handlooms, and embroidered clothing. This segment's decline is expected to be mitigated, given it accounts for 35% of sales, while about 65% of revenue comes from garments priced under Rs 2,500, making mid and value segments the growth drivers.

Analysis covering approximately 40 organised retailers, representing about a third of the sector's revenue, supports these findings. Anuj Sethi, Senior Director at Crisil Ratings, highlighted: "The introduction of a 5% GST slab up to Rs 2,500 enhances price competitiveness in price-sensitive fast-fashion/value and mid-premium markets. The timing, coinciding with the festive season, should catalyse consumer spending, boosting demand as middle-class expenditure rises." Easing inflation and food costs, coupled with quicker fashion-refresh cycles, are poised to assist retailers in achieving consistent sector revenue growth.

Despite potential setbacks from increased tax rates on the premium bracket during peak shopping seasons, the transition may see consumers shifting towards slightly cheaper yet stylish options in the 5% GST bracket. Poonam Upadhyay, Director at Crisil Ratings, indicated that some apparel retailers might absorb some of the tax increases to maintain demand during the festive and wedding season frenzy. Lower cotton prices and GST cuts on synthetic fibers are set to reduce input costs, with expectations of a modest rise in operating margins.

Overall, the GST revision aligns with India's transforming consumer landscape, spurred by rising middle-class incomes and urbanisation, coupled with a growing preference for affordable fashion-forward attire. (ANI)

(With inputs from agencies.)