GST Boost: How Tax Cuts Will Fuel India's Apparel Retail Growth by 200 bps

The shift to a uniform 5 per cent GST on apparel priced below Rs 2,500--from a dual structure of 5 per cent below Rs 1,000 and 12 per cent up to Rs 2,500--is expected to drive demand in the mid-premium segment. Alongside, the fast-fashion and value segments are projected to continue leading growth.

While the GST hike from 12 per cent to 18 per cent on apparel priced above Rs 2,500 has dampened demand in the premium segment--affecting wedding wear, woollens, handlooms, and embroidered clothing--the impact is expected to be limited. The premium segment contributes about 35 per cent of organised apparel sales.

However, with nearly 65 per cent of sector revenue coming from apparel priced under Rs 2,500, gains in the mid and value segments are likely to offset softness at the higher end.

The findings are based on an analysis of around 40 organised retailers, representing nearly one-third of the sector's revenue.

Anuj Sethi, Senior Director, Crisil Ratings said, "Extending the 5 per cent GST slab to apparel priced up to Rs 2,500 boosts price competitiveness across the fast-fashion/value and mid-premium segments, whose customers are price-sensitive. With the timing of the GST rate cut coinciding with the festive season, demand should increase as middle-class spending picks up."

"Moreover, benign inflation, easing food cost and faster fashion-refresh cycles will help retailers gain a modest share-of-wallet advantage in discretionary categories, leading tosustained sectoral revenue growth of 13-14% this fiscal," Sethi added.

The report added that this development is notable especially following six consecutive quarters of moderate growth, despite festive seasons and prolonged discounts to boost revenue. Easing inflation and GST reduction will enhance affordability, which would otherwise have remained sluggish.

Introduced during the festive and wedding seasons, the higher levy on the premium segment could restrain revenue growth unless retailers absorb part of the impact.

The impact will likely be most visible among buyers in the Rs 2,500-Rs 3,500 range. Many in this bracket may shift towards slightly lower-priced apparel in the 5 per cent GST slab, which offers comparable style and quality.

Poonam Upadhyay, Director, Crisil Ratings said, "Apparel retailers with a higher share of premium sales may choose to absorb part of the GST hike to sustain demand during the ongoing festive and wedding season, when buying activity is buoyant."

"However, lower cotton prices and the reduction of GST on synthetic fibres and yarn, from 18% and 12 per cent to a uniform 5 per cent, will ease input cost. As a result, given raw materials account for almost twothirds of production cost, the sector's operating margin is expected to inch up to 14.0-14.5 per cent this fiscal from 14 per cent last fiscal, even as marketing spending remains elevated amid intense competition across both the value and mid-premium segments," Upadhyay further added.

The rating agency added that overall, the GST revisions align with India's evolving consumption dynamics, which are driven by rising middle-class incomes, urbanisation, and a visible shift towards affordable, fashion-forward clothing.

- ANI