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Impact of GST on Handloom and Handicraft Industry

Considering crafts is the largest sector after agriculture, employing a whopping 49 million artisans, the GST is poised to make things difficult for the sector. If agriculture and crafts sector with handloom being its largest chunk, are the backbone of the economy, then surely the crafts sector is taking the biggest punch with GST.

Decoded — the GST will mean that yarn debts will increase and individual enterprise will gasp for survival. Most individual weavers have no access to buying yarn as many live in remote clusters or even cash to buy it. There is a supply chain in place in most areas where either credit is extended by the middleman of the bigger middleman and once the weaver has finished weaving he is given his weaving fees, which is often a pittance. He is obviously not in any position to dictate his fees. Unless weavers align themselves into co-operatives they will have no option but to fall into the trap of the local moneylender or work for the middleman who gives them yarn on credit or buys off their finished product.

There is five per cent tax on all yarns and five percent on all finished products. So in some textiles it will affect input and in some it will affect output. The five percent on raw material will be charged by the yarn supplier to the weaver then on services like warping and twisting there is an 18 percent tax. So the input cost goes up by 23 percent. Which the consumer won’t see as line items but the cost of sarees will go up because the raw material is more expensive.

On the finished sari, five per cent will have to be charged during the sale. So the overall impact is 28 per cent but the customer will see only five per cent as a line item on the invoice or bill. And six percent is payable if you are paying online. Thankfully there is zero per cent on khadi (select items). On all products above one lakh it is 12 per cent and the same goes for value added products like kalamkari, Madhubani, block printing etc where the embellishment happens after the textile is in place.

Banaras is literally at standstill because the weavers’ working capital for higher yarn cost is near impossible to manage and orders are not getting fulfilled hence there is a problem of circulation of money. There is immense pressure in Banaras to implement the GST as it is the Prime Minister’s constituency and they want to promote it as the best way out. It completely negates the work of revivalists who are doing yeoman’s service in trying to both create a demand and infuse design life into the community.

Since independence there has been no tax on Banaras handlooms as it is a struggling art form and the weaver community is finding it tough to accept the change. The trade involves multiple layers from yarn supplier to the end gadidhar. This entails many participants whose services are not very well defined in the process or the GST list of services. The cumulative effect of same may at time will be well over 15 per cent, making the handloom product further uncompetitive.

The weaver community is always in dire need of funds, and this will worsen their situation. Handloom is a decentralised occupation and mostly rural based. With no formal schooling most weavers have not even completed middle school and also belong to lower middle class making them incompetent run the GST process and to mention HSN numbers etc in the invoices. Sarees in Banaras move from hand to hand from the actual weaver to the final shopkeeper – no formal invoicing happens at any stage expect when sold in retail. As it is the younger generations in the weaver families do not want to continue weaving in want of greener pastures.

The GST will have a crippling effect and kill the sector. No work has happened for almost 10 days and the wage earner is now losing patience. Weavers Story has started an online campaign with a hashtag #nogstonhandlooms to bring attention to matter and reach out to amend matters. While Tamil Nadu is the one state where the cooperative movement is very strong, and can allegedly bring down the government, there seems to be anger in sectors like Kanchipuram and Arini for it is felt that industry needs have not been looked into.

More so because of the lack of education, empowerment of weavers is at stake. There should have been a concentrated focus on creating responsible and accountable co-operative systems that would ensure a fair deal to the weavers. In the absence of that support structure, and the lack of clarity on how GST is going to apply, the small, independent weavers will probably now fall in the clutches if the middlemen. The big players may well be the ones to gain the most. Handlooms need to be treated kindly so weavers do not lose sustainability. In areas where there are fewer weavers, co-operatives too are not an option.

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CA Ankita Mathur
CA Ankita Mathur
Ankita, a Big 4 alumna, is a tax expert at H&R Block (India) with vast experience in managing GST-related business services. An avid traveller, Ankita is a regular contributor to the CAclubindia and loves helping people understand about GST and helping companies be GST compliant.