Inversion in tax structure raises input costs for domestic manufacturers and erodes their competitiveness in the global markets
The inverted GST structure has been pushing up costs in the man-made fibre industry, particularly when the global geopolitical tensions and fast evolving US duty structure have rattled the export market.
In polyester, which accounts for nearly 60 per cent of global fibre demand, the raw material Polyethylene Terephthalate polymers are taxed at 18 per cent, while finished polyester yarns attract a GST of only 5 per cent. Similarly, distortion exists in the viscose staple fibre (VSF) value chain, where rayon-grade wood pulps are taxed at 18 per cent, compared to 5 per cent on the finished fibre.
High input costs
The inversion in tax structure raises input costs for domestic manufacturers and erodes their competitiveness in the global markets. The inverted duty structure notwithstanding, finished VSF are being imported from ASEAN countries at zero duty, while Indian producers continue to pay an effective duty of about 2.5 per cent on their primary raw material, rayon-grade wood pulp. This duty inversion further tilts the competitive landscape in favour of imports.
In addition, Indian VSF manufacturers pay duties on essential inputs such as sulphur and natural gas, whereas competitors in countries such as Indonesia enjoy zero-duty access to these raw materials, conferring a significant cost advantage, said a CEO of leading textile company.
Moreover, competing countries have an upper hand with greater access to the Indian market, as the recent rollback of quality control orders on VSF is expected to open up import of poor quality consignments, he added.
Cost pressures are further exacerbated by logistical fragmentation. Unlike the integrated, plug-and-play industrial ecosystems seen in countries such as China, India’s textile value chain is geographically dispersed across multiple States.
SP Katnauria, Secretary General, Association of Man-Made Fibre Industry of India, said short-term price advantages from imports should not be mistaken as progress towards long-term export competitiveness.
True competitiveness comes from robust upstream and downstream domestic capacity, capability and investment confidence across the value chain, he added.
Jaijit Bhattacharya, President, Centre for Domestic Economy Policy Research, said several recommendations based on thorough investigations in the last six months by the Directorate General of Trade Remedies, the quasi-judicial authority for investigating and recommending trade remedies, have lapsed.
The textile industry will benefit more if structural anomalies such as inverted duty and GST structures that currently penalise domestic value addition are addressed, he added
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