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.”