GST 2.0: Relief for pharma, pain for textiles, ceramics and MSMEs in Gujarat

The textile traders of Surat, who have been opposing the GST regime since it was rolled out in 2017, are not exactly exuberant with the recently announced changes.

The new slabs, announced on Wednesday, corrected an inverted duty structure by reducing the GST rate on manmade fibres from 18% to 5% and manmade yarn from 12% to 5%. However, the tax on apparel and clothing accessories, knitted or crocheted, of sale value of over Rs 2,500 per piece has been increased from 12% to 18%.

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Struggling textile sector

“The textile sector of Surat is hanging by a thread. Since 2017, the traders have been struggling due to one issue after another. Last month, the Textile Association of Surat had written a letter to Finance Minister Nirmala Sitharaman, urging her to bring down the GST rates of all garments, irrespective of the price, to 5%," Champalal Bothra, president of Federation of Textile Traders Association of Surat (FOSTTA), told The Federal.

"While the 5% GST on garments costing less than Rs 1,000 will boost affordable synthetic clothing, the 18% slab on garments costing above Rs 2,500 will directly impact our largest market – middle-class buyers. Earlier, it was taxed at 12%. The increase in the tax rate, especially ahead of Diwali and Navratri, when it is time for the sale of festive wear like kurta, sari and lehenga, will dampen the sale. Following the announcement of the new slabs, we have urged the minister again to bring garments up to Rs 10,000 in the 5% slab.”

“GST rates have been slashed from 18% to 5% on man-made fibre, and for man-made yarn, the rates have been slashed from 12% to 5%. Even the sewing thread is now taxed at 5%. It would be more realistic to bring all textile products under one slab,” added Bothra.

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Ceramic industry dejected

For the ceramic industry of Morbi, the new GST slabs have come as a disappointment. Last month, the Morbi Ceramic Manufacturers Association (MCMA) had urged the Union government to reduce the tax on tiles and sanitaryware from 18% to 5%.

While the GST on ceramic tableware, kitchenware, statuettes and decorative, earthenware and handicraft has been reduced from 12% to 5%, the tax on ceramic sanitaryware and vitrified tiles has remained unchanged at 18%.

“At a time when the ceramic trade is badly hit by US tariffs, a 5% tax slab would have come as a breather. Since the tariff imposed by the US, the large units are running on a thin profit margin, while many small and medium units have shut down. Lowering the GST would especially help the small and medium traders of Morbi,” Haresh Bopaliya, president of MCMA, told The Federal.

“The government has reduced the GST on marble, travertine blocks and granite blocks from 12% to 5%. However, ceramic and vitrified tiles are used more in middle-class housing than granite and marble, as they are cheaper,” added Bopaliya.

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Pharma sector hails move

The pharmaceutical sector of Gujarat has, however, unanimously hailed the new GST slabs with Union government reducing taxes from 12% to 5% on a wide range of products, including medical apparatus and devices used for medical, surgical, dental and veterinary purposes, pathological laboratory chemicals and apparatus, anaesthetics, medical grade oxygen, wadding, gauze, bandages, dressings, plasters, haemostatics, adhesion barriers and sterile pharma items (except contraceptives).

Adding to that, GST has been totally removed from 33 life-saving medicines and drugs that were earlier taxed at 12% and medicines for cancer, chronic and rare diseases that were earlier taxed at 5% have also been exempted from GST.

“We are very happy with the decision of the government to reduce GST on a wide range of pharmaceuticals, drugs, as well as medical equipment. In the last week of August, the Indian Medical Association (IMA) had written to the finance minister, requesting her to exempt life-saving medicines from GST. The new GST slab on medicines and apparatus will go a long way in making treatment affordable for people, as the cost of operating hospitals, clinical test laboratories will go down,” Dr Shrenik Shah, chairman of the Gujarat State Board of the Indian Drug Manufacturers’ Association (IDMA- GSB), told The Federal.

“Gujarat accounts for about 28% of the country’s pharmaceutical manufacturing. With the reduced GST rates, we look forward to an increase in demand in medical equipment from hospitals in cities and small towns. Small hospitals and nursing homes that lack infrastructure can now afford new-age machinery and equipment,” he added.

Also Read: GST 2.0 explained: What India’s new tax regime means for you | K Vaitheeswaran interview

Jolt for MSME sector

The increase in the GST rate for labour charges (job work) has come as a shock for the MSME sector of Gujarat, which has been struggling since 2020.

“It was a long-pending demand of the MSME industries, especially in the manufacturing sector, to reduce the GST on labour charge to 5% from 12%. However, it has been increased to 18% instead. The decision will be another blow for the MSME sector that has been struggling with rising operational costs and decreasing demand post-pandemic.

“Gujarat accounts for about 7.5% of India’s MSME sector. Yet the Gujarat government has failed to utilise any funds from the Raising and Accelerating MSME Performance (RAMP) scheme of the Union government in the last financial year. This pushed the state’s MSME sector to further distress, forcing 3148 MSME units to shut down between 2024-25,” Sailesh Patel, chairperson of MSME Task Force, a body under the Gujarat Chamber of Commerce, told The Federal.

“The steel sector will be the worst impacted by the new GST slab. Gujarat used to be home to about 80% of the total steel manufacturing units of the country. But since 2021, the steel sector has been on a decline owing to the Union government’s decision to remove duty on Chinese steel imports. As the cheap Chinese imports took over the market, more than 35% of the units had to shut down between July and September in 2024,” added Patel.