An analysis by Crisil Ratings of 40 organised apparel retailers—collectively accounting for nearly one-third of the sector’s revenue—indicates that the recent goods and services tax (GST) rationalisation will add approximately 200 basis points (bps) to revenue growth in India’s organised apparel retail sector this fiscal year. The move is expected to keep sectoral growth steady at 13–14% for the second consecutive year.
According to the report, the GST rate cut on apparel priced below Rs. 2,500 (US $ 28) is set to spur demand in the mid-premium segment, while the fast-fashion and value segments are expected to remain key growth drivers. The uniform 5% GST rate, replacing the previous dual structure of 5% below Rs. 1,000 (US $ 11) and 12% between Rs. 1,000 (US $ 11) and Rs. 2,500 (US $ 28), has widened the consumption base. However, the rate increase on apparel priced above Rs. 2,500 (US $ 28)—from 12% to 18%—has impacted the premium category, which includes wedding wear, woollens, handlooms and embroidered clothing, accounting for roughly 35% of organised apparel sales.
Anuj Sethi, Senior Director at Crisil Ratings, noted that extending the 5% GST slab to apparel priced up to Rs. 2,500 (US $ 28) enhances price competitiveness across the fast-fashion and mid-premium segments, which are largely driven by price-sensitive consumers. He observed that the timing of the rate cut, coinciding with the festive season, is likely to stimulate demand as middle-class spending rises. Sethi added that easing inflation, lower food costs and shorter fashion-refresh cycles are expected to give retailers a modest share-of-wallet advantage in discretionary categories, sustaining sectoral revenue growth of 13–14% this fiscal.
Following six consecutive quarters of moderate expansion despite festive seasons and extended discounting, the combination of easing inflation and GST relief is expected to lift affordability and consumer sentiment. Nonetheless, the higher GST on premium apparel could temper revenue growth unless retailers absorb part of the increase. The impact is likely to be most pronounced among buyers in the Rs. 2,500 (US $ 28)–Rs. 3,500 (US $ 40) range, some of whom may trade down to lower-priced garments within the 5% GST bracket offering similar style and quality.
Poonam Upadhyay, Director at Crisil Ratings, remarked that retailers with a larger share of premium products may opt to absorb a portion of the GST hike to sustain festive and wedding season demand. She noted that lower cotton prices and the GST reduction on synthetic fibres and yarn—from 18% and 12% respectively to a uniform 5%—will ease input costs. With raw materials constituting nearly two-thirds of production expenses, the sector’s operating margin is expected to edge up to 14%–14.5% this fiscal from 14% last year, despite elevated marketing spends amid heightened competition across the value and mid-premium segments.
Overall, the GST revisions reflect India’s shifting consumption patterns, underpinned by a growing middle class, urbanisation, and an increasing preference for affordable, fashion-forward clothing. However, any resurgence in inflationary pressures or slowdown in wage growth could challenge the sector’s demand momentum in the coming quarters.
