The Goods and Services Tax or GST rolled out on July 1 is considered by the government as an achievement, with several taxes being replaced by a single tax with few slabs, its implementation since has caused multiple woes across Indian industry, not so much due to increase in the prices of goods in many states, as the manner in which it has affected the way of doing business after that.
The handloom sector has been one of the worst hit due to the new GST regime, more so the weavers, who are the backbone of this significantly contributing sector of the Indian textile industry. Unnati Silks, working extensively since 1980 in the field of Handloom and Handcrafted Textiles at the grass root level, tries to explain major factors affecting the weavers due to implementation of GST.
The Indian weaver or any other craftsman for that matter is a simple individual fully conversant about his craft and craftsmanship, knowing what designs to select, what fabric to choose, is fully immersed in his world of weaving and workmanship. Bring him out of this familiar world and he flounders like a fish out of the water.
The architect of the products of the hand operated looms, already burdened with his pitiable state of affairs in eking out a decent living, has with the introduction of the GST become subject to additional woes that threaten to shake the very foundations of his life and livelihood.
Let us understand how:
The GST regime has ushered in several firsts for the handloom industry. Cotton fiber, yarn and fabric which were not taxed, attracted 5percent GST. Though silk and jute remained at 0percent, synthetic fiber yarn got taxed at 18percent. For fabrics from hand-made yarn it would be 12percent for the yarn and 5percent for the prepared fabric.
This translated simply means that the weaver would now have to in addition to his woven fabric, be attracting GST for the yarn that he procures, color dyes that he uses, print jobs that he gets done, and a host of other things that involves materials or processes for the making of a handloom fabric from start to finish. Naturally the cost of the finished product would have to be increased.
The handloom industry in India is highly de-centralised, is rural-based and spread across India, with a high concentration of women in its workforce, and from the most vulnerable sections of society. In pitiable living conditions, meager means to go by, the 43.32 lakh workers who account for 14 per cent of the total textile production in the country produce extremely fine, laudable weaves despite their limited resources.
But the education level being elementary, awareness being very low, GST compliance through filling of forms, observance of procedures and other formalities is a scary proposition that has shaken them to the core. Not at all aware, nor having the resources in his local surroundings, he has to seek out the help of professionals dealing with GST, who have an attached cost for their services and additionally would force the weaver to travel to urban areas, adding to his financial misery.
When the awareness and education level is fairly low, it creates a natural thought process of doubt and suspicion about anything new that comes up as unfamiliar. For one who is only accustomed to direct selling, either to the regular trader or a customer, has not dealt with paper work of any sort, the GST gets viewed with doubt and suspicion as something that could snatch away even the meager means that the weaver possesses.
Those around him themselves no better in knowing the system well enough to explain, further compound his fears with their own views that most times are vague, unsatisfactory and filled with contradictions.
What does the rural based ethnic craftsman do upon creating his beautiful weaves? He seeks avenues to sell. Before the GST regime, all he had to do was state his price, negotiate where necessary and complete the sale. It could be through his familiar local trader, through contacts in places other than his place of residence, or sometimes even venturing to personally travel to places. It was simply taking the woven fabrics and effecting a transaction that fetched him a decent return for his effort.
Today it cannot be so. The price is not to his liking, he cannot venture high bargains because the price is raised, anything apart from local sale would attract GST at every exchange or transaction and lastly he has to depend upon his familiar trader or local leads and complete the sale that may remuneratively be discouraging.
"I have to depend solely on the goodwill of my buyer and the mercy of God to even get back what I incurred in weaving my product," said Venkat Ramulu, weaver from Rasipuram, Tamil Nadu. By no means untrue!
The Handloom Industry received its massive boost in 2015 when the PM announced Handloom Day and declared it would be celebrated annually since. A slew of measures to promote handlooms, schemes for their effective marketing, and buoyed up spirits augured well for a start.
There was no taxation to negligible rates for the sector. The unification of various taxes to a single GST and one that included the Handloom sector like any other was a cruel blow that none saw coming. It seems that the Textiles Ministry and Finance Ministry spoke in different voices.
While the former with assuring statements and encouraging schemes aimed at boosting the rise in handlooms, approved sector-friendly policies, the introduction of minimum GST for product materials and processes of the handloom sector that hitherto enjoyed nil taxation, caused a major setback.
Unfortunately the product process system in textiles has not been studied in depth. e.g. fabric yarn that is made at a place, could be dyed at a second place, woven at a third, printing taking place at a fourth and so on. At every stage there would be a GST that would be attracted and despite all these stages being the start to finish for the same single product, the multiple GST that the stages attract, pile up to make the product much costlier than before the GST regime.
GST registration makes things slightly easier in the compliance, but for the small weaver this is both difficult and discouraging. Naturally he gets dependent on others to comply for him and again he is either paying a price or has to be obliging to the one who does it for him.
The vicious circle for the handloom weaver
Handloom production is dependent on private money lending to the tune of Rs 35,000 crore, and pays interests between 18 to 24 per cent. Yet, it gets a paltry budget allocation, a mere 0.003 per cent in national budget in 2013-14. Public investment on handloom sector per metre was a mere 48 paise in 2008-09, while for the non-handloom it was 62 paise.
Per capita allocation also being low, Imposition of GST on handloom is ill-conceived, simply because the estimated tax base is very low - a mere 1.2 per cent of the National figure. Relief to the already beleaguered class would not affect revenues from tax, and would go a big way in alleviating their problem and uplift their sagging spirits.
The weights of products in the textile markets would differ based upon the fiber material used, their make, quality etc. Naturally the GST would impose slightly higher prices for handloom products that are mostly made from natural fibers, could shift the market towards cheaper artificial fibers. Further, price elasticity of low and high value-added products would be affected badly, stressed by 'fake' handloom products that are replicated with inferior materials in the name of handlooms.
Textile equipment attracts 18 per cent taxation. With no clarity on how this payment can be claimed as Input Tax Credit (ITC) by weavers, this unnecessary burden is imposed on handloom weavers because of GST turnover provisions. In this monopolistic situation, a registered supplier could very well collect ITC from the gullible weaver, and yet claim ITC.
On the other hand considering it cumbersome to deal with, to avoid the burden of reverse charge, the average retailer or registered assessed could prefer to deal with only those having a GST registration, creating a crisis for a majority of the handloom sector.
"The handloom sector has always had it bad when it comes to reliefs, relaxations, institutional credit, assured markets for what they produce, and a host of other benefits that most other sectors enjoy. In fact the apathy is compounded by the fact that it is second only to agriculture in terms of employment potential, is rural based and representative of the country's heritage worth in textiles that keeps India's colors flying high in international displays and comparison. Yet never shown consideration, given the right financial incentives or given the credit it truly deserves," said Devender Ladha, Founder and MD of Unnati Silks.
A definition of hand-woven and hand-made products in the GST Act would definitely be of great help to the sector as a start, since most handloom product sales are intra-State, and State governments could surely exempt them from SGST.
In such a scenario with so many points to justify, the consideration of withdrawal of GST for the handloom sector could provide that moral boost and impetus that is much needed to alleviate the hopelessness and despair already written on the face of the humble artisan but pride of India, to quite a significant level.
Disclaimer: No Business Standard Journalist was involved in creation of this content
