GST Rationalisation to Boost Apparel Retail Growth by 200 bps
India’s organised apparel retail sector is set to maintain strong revenue growth of 13-14% this fiscal year, with recent GST rationalisation expected to add 200 basis points to growth, according to Crisil Ratings.
Key Takeaways
- Uniform 5% GST on apparel under ₹2,500 to drive mid-premium segment demand
- Premium segment (35% of sales) faces 18% GST but impact expected to be limited
- Operating margins to improve to 14.0-14.5% from 14% last fiscal
- 65% of sector revenue comes from apparel priced below ₹2,500
GST Changes Driving Growth
The shift to a uniform 5% GST rate on apparel priced below ₹2,500—from the previous dual structure of 5% below ₹1,000 and 12% up to ₹2,500—is expected to significantly boost demand in the mid-premium segment. This change comes at an opportune time, coinciding with the festive season when middle-class spending typically increases.
Anuj Sethi, Senior Director at Crisil Ratings, stated: “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.”
Premium Segment Adjustments
While the GST increase from 12% to 18% on apparel above ₹2,500 has dampened demand in the premium segment—affecting wedding wear, woollens, handlooms, and embroidered clothing—the overall impact is expected to be limited. The premium segment contributes approximately 35% of organised apparel sales.
Poonam Upadhyay, Director at Crisil Ratings, explained: “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.”
Margin Improvement Expected
Lower cotton prices and the reduction of GST on synthetic fibres and yarn to a uniform 5% will ease input costs for retailers. Given that raw materials account for nearly two-thirds of production costs, the sector’s operating margin is projected to improve to 14.0-14.5% this fiscal from 14% last fiscal.
The findings are based on analysis of approximately 40 organised retailers representing one-third of the sector’s revenue. The GST revisions align with India’s evolving consumption patterns driven by rising middle-class incomes and a shift toward affordable, fashion-forward clothing.
