Indian Manmade Fibre (MMF) Industry In Jeopardy: Increased Imports And Esclated Cost Affects Industry

Working out tax rates for different goods and services was a huge challenge for India’s Goods and Services Tax (GST) Council. Although the GST has taken under consideration a significant part of the industry - cotton and natural fibers, distortion has been introduced in the GST system, through the ‘inverted’ duty structure on man-made fibers. Man-made fiber and synthetic yarn attract an 18% GST rate as compared to 12% excise duty, while the fabric produced from these fibers is taxed at 5%. This creates a situation where the input is taxed at a much higher rate than the final product.

GST giving an upper hand to the homegrown cotton and natural fibers jeopardizes the domestic MMF industry causing the continuous rise in import of man-made fibers (MMF) that in turn is deeply hurting the domestic textile sector, according to the Confederation of Indian Textile Industry (CITI). It has been observed that there is a substantial increase in imports of MMF yarn post-GST being 83% and apparel being 84% percent. Analysis by CITI shows the primary reason for this is the removal of countervailing duty (CVD) after GST was implemented, which overnight made imports cheaper by more than 12% percent.

To combat the increasing imports and in order to help the MMF sector of India, the import duty on fabrics and garments was subsequently increased by the government to control imports, and therefore, the import of fabrics has been relatively under control. However, the import of garments could not be controlled through this measure because of free trade agreements (FTAs).

Moreover, the import of polyester yarn in India has been increasing by a compounded annual growth rate (CAGR) of about 13% since 2014-15 to reach $95 million in 2018-19. Indonesia is the biggest supplier of such yarn to India and notably, imports from there have increased exponentially at a CAGR of 59% during the same period.