The 56th meeting of the GST Council held recently has culminated in a landmark restructuring of India’s indirect tax regime, with far-reaching implications across key sectors.

The earlier five-tier GST structure—comprising 0 per cent, 5 per cent, 12 per cent, 18 per cent, and 28 per cent slabs—has been replaced by a more streamlined framework featuring just two principal rates of 5 per cent and 18 per cent, supplemented by a new “sin and luxury” rate of 40 per cent for a narrow band of goods.

The revised GST rates are scheduled to take effect from September 22.

For the apparel and textile sector, the council has fixed a uniform 5 per cent GST rate on readymade garments and made ups, excluding items under HS codes 63053200, 63053300, and 6309.

In a significant rationalisation, the GST on manmade fibres has been slashed from 18 per cent to 5 per cent, while yarns have been brought down from 12 per cent to 5 per cent. This alignment effectively corrects the long-standing inverted duty structure (IDS) across the MMF value chain—fibre, yarn, and fabric—removing a key distortion that had undermined manufacturing competitiveness and locked up working capital.

Given that a substantial portion of MMF production takes place in the MSME segment, the rate cuts are expected to alleviate cost burdens, enhance liquidity, and improve cash flow efficiency.

More importantly, the move bolsters the global price competitiveness of Indian MMF-based garments, reinforcing the country’s strategic objective of becoming a dominant hub for synthetic textiles and MMF-based apparel.

The timing of the GST overhaul is particularly crucial, offering timely relief to an industry reeling from the impact of US President Donald Trump’s steep 50 per cent tariff on Indian goods.

While the Government has maintained that the GST reform has been in the works for over a year and is not a reactionary policy move to US tariffs, the revised GST structure is nonetheless seen as a much-needed support mechanism for export-oriented industries navigating severe external shocks.

Industry stakeholders largely welcomed the reform, viewing it as a long-overdue rationalisation of what many felt was an irrational tax structure.

S.K. Sundararaman, Chairman of the Southern India Mills Association (SIMA), reportedly noted that the prior tax regime—where MMF inputs were taxed higher than outputs—effectively made affordable clothing more expensive for end consumers. The rectification is expected not only to enhance affordability but also to reduce import dependency by promoting domestic value addition.

Rakesh Mehra, Chairman of the Confederation of Indian Textile Industry, echoed similar sentiments, emphasising that the alignment of tax rates across the MMF value chain is a critical step toward resolving longstanding working capital constraints faced by thousands of spinners and weavers.

Mehra reportedly also pointed out that over 70 per cent to 80 per cent of the textile and apparel ecosystem is comprised of MSMEs, many of which operate on tight margins and limited cash reserves. For them, any measure that eases input cost burdens and streamlines refunds has a direct bearing on operational viability and market competitiveness.

Some concerns have, however, emerged centring on the move to impose an 18 per cent GST on garments priced above ₹2,500.

The Clothing Manufacturers Association of India (CMAI), while fully endorsing the revised GST rate structure and commending the Government for accepting two key industry demands—the elimination of the inverted duty structure by applying a uniform 5 per cent  GST across the entire value chain from fibre onward, and the adoption of a fibre-neutral approach by aligning MMF and cotton fibre chains—has urged the GST Council to address one anomaly: the imposition of 18 per cent GST on garments priced above ₹2,500.

CMAI stressed that this higher tax rate undermines affordability and creates an unnecessary burden on consumers, despite the broader positive intent of the reform.

The Retailers Association of India (RAI), while supportive of the move towards a simpler dual-rate GST system, also flagged the structural shortcomings of price-based tax slabs. The RAI has recommended the adoption of a uniform GST rate across product categories, cautioning that the 18 per cent GST on apparel items priced above ₹2,500 could distort consumer behaviour and suppress demand in key segments of the fashion retail market.

Some industry insiders also believe that the differential tax treatment based on price bands may inadvertently fuel the growth of the grey market, leading to an uptick in counterfeit and substandard goods as consumers seek cheaper alternatives.

Others have highlighted that apparel brands and retailers typically operate on razor-thin margins and may have no option but to pass on the higher tax burden to the consumers.

In such a scenario, the anticipated growth in domestic fashion retail could be impacted.

Notwithstanding the apprehensions, the on-ground impact of the new GST structure will become more apparent in the quarters following its implementation, most stakeholders felt, while underlining that with any policy overhaul of this magnitude, one cannot completely rule out transitional friction.

However, the broader consensus within the industry suggests that the benefits, particularly in terms of ease of doing business and improved cost efficiencies, might very well outweigh the short-term disruptions, if any.

The 56th GST Council meeting introduced a simplified regime, collapsing the earlier five-rate system into two primary slabs.
A uniform 5 per cent GST has been fixed for most garments and manmade fibres/yarns.
Some trade bodies have raised concerns over the 18 per cent GST on garments above ₹2,500; the majority, however, feel the reform will boost competitiveness and sectoral growth.

Fibre2Fashion News Desk (DR)

The United Overseas Bank (UOB) recently raised its 2025 gross domestic product (GDP) growth forecast for Vietnam to 7.5 per cent from 6.9 per cent earlier, citing economic resilience and dynamism despite tariff risks and uncertainties.

The Vietnamese government is targeting a GDP growth of 8.3-8.5 per cent this year.

The United Overseas Bank has raised Vietnam’s 2025 GDP growth forecast to 7.5 per cent from 6.9 per cent, citing economic resilience and dynamism despite tariff risks and uncertainties.
The government’s 2025 growth target is 8.3-8.5 per cent.
For 2026, UOB maintained its growth forecast at 7 per cent.
It expects the country’s exports to grow by about 10 per cent in 2025 compared with 14 per cent in 2024.

For 2026, UOB maintained its growth forecast at 7 per cent.

Vietnam’s GDP expanded by 7.52 per cent year on year (YoY) in the first half (H1) this year, marking the quickest H1 pace since 2011, according to the Singapore-based bank’s global economics and markets research unit.

The strong first-half results were propelled primarily by a 14-per cent YoY rise in exports, bolstered by improved market sentiment following US President Donald Trump’s temporary reduction of reciprocal tariffs to a baseline 10 per cent for trading partners over 90 days.

Tariff uncertainties abated in the second half of 2025 after the US locked in country-specific rates ahead of the August 1 deadline, with Vietnam’s levy settling at 20 per cent.

Despite tariff pressures, UOB expects the country’s exports to grow by about 10 per cent this year compared with 14 per cent last year, assuming a moderate 1-5 per cent YoY expansion over the rest of the year.

Vietnam’s manufacturing Purchasing Managers’ Index (PMI) rebounded to 52.4 in July after three consecutive months below the 50-point contraction threshold. Industrial output rose by 9 per cent YoY.

Realised FDI reached $13.6 billion as of July, up from $12.6 billion a year earlier, indicating full-year inflows may surpass $20 billion compared with $25.4 billion in 2024, a domestic news agency reported citing the UOB document.

Fibre2Fashion News Desk (DS)