An analysis by Crisil Ratings of 40 organised apparel retailers, accounting for a third of the sector’s revenue, indicates that the recent goods and services tax (GST) rationalisation will add about 200 basis points (bps) to revenue growth of India’s organised apparel retail sector this fiscal, keeping it steady at 13-14% for the second consecutive fiscal.
The GST rate cut on apparel priced below Rs 2,500 is likely to lift demand in the mid-premium segment, while the fast fashion / value segment will continue to drive the momentum. The GST relief, though limited, provides timely support to sustain growth. The uniform 5% GST rate―versus the previous dual structure of 5% below Rs 1,000 and 12% between Rs 1,000 and Rs 2,500―has widened the consumption base.
Conversely, the increase in the GST rate on apparel priced above Rs 2,500 from 12% to 18% has weighed on premium categories, including wedding wear, woollens, handlooms and embroidered clothing. The premium segment accounts for about 35% of organised apparel sales. With the fast-fashion/value and mid-premium apparel (largely priced below Rs 2,500) segments accounting for almost 65% of the sector’s revenue, stronger traction in these price bands will likely offset muted growth in the higher-priced apparel segment.
Says Anuj Sethi, Senior Director, Crisil Ratings, “Extending the 5% 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 to sustained sectoral revenue growth of 13-14% this fiscal.”
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% GST slab, which offers comparable style and quality.Says Poonam Upadhyay, Director, Crisil Ratings, “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% to a uniform 5%, will ease input cost. As a result, given raw materials account for almost two- thirds of production cost, the sector’s operating margin is expected to inch up to 14.0-14.5% this fiscal from 14% last fiscal, even as marketing spending remains elevated amid intense competition across both the value and mid-premium segments.”
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. As discretionary spending remains sensitive to inflation and employment trends, a resurgence in pricing pressures or a moderation in wage growth could test the sector’s demand momentum.
