The Effects of GST on the Handloom Sector

The Indian handloom industry is presently estimated to produce goods valued at around $108 billion. Nearly 27 lakh households across the country are employed in this sector. It is one of the major contributors to exports with a share of about 15 per cent. It provides employment to a large proportion of skilled as well as unskilled workers in India. It is a decentralised sector spread mostly over fifteen states, with Andhra Pradesh, Tamil Nadu, Kerala, Karnataka, Rajasthan, West Bengal, Uttar Pradesh and Gujarat being the main hubs of handloom production activity. It is mostly a household activity. The expenditure of the handloom sector is more than Rs 25,000 crore on cotton yarn, and Rs 9,500 crore on dyes and chemicals, every year.

The goods and services tax (GST) was introduced on 1 July 2017. Prior to GST being imposed, handloom products were either exempted from tax or taxed at very low rates. Handlooms are now being taxed for the first time since Independence. The cotton fibre which is widely used in textile manufacturing was exempted from central excise duty. The rates were kept low in order to encourage production and a traditional indigenous art form, and also to generate employment and make it worthwhile for artisans to remain in the trade and for other people to train in the art form and join the trade. The low tax rates in this sector allowed it to grow and helped it become a major contributor to GDP even though it is primarily an unorganised sector. With the GST being rolled out and given its structure, it is feared that it will prove to be devastating for the industry, decreasing its competitiveness and weakening its finances. The structure of the GST affecting the handloom sector is as follows.